ceylon grain elevators plc- annual report 2010

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REAPING / HARVESTING PROSPERITY

A n n u a l R e p o r t

2 0 1 0

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Ceylon Grain Elevators PLC



Our corporate philosophy is centred upon the 3H principles of building

a Healthy Organisation, being an Honourable Winner and making an

Honest Fortune. This business philosophy is derived from our Parent

Company, Prima Limited of Singapore.

Healthy Organisation

Developing a sound, effective and efficient organisation system.

Promoting team sprit and reaching out to create a “PRIMA FAMILY”identity.

Honest Fortune

Establishing trust, fairness and mutual benefits with all within our

business circle. Contributing to the well-being of society.

Honourable Winner

Achieving success through fair competition.

Striving towards excellence.

Our Corporate Goals

In line with our Chairman’s directives and Prima Group corporate

philosophy, we will continue to grow steadily in our primary activities

with the ultimate goal of reaching the status of an integrated

feedmilling business.

Our future expansion plans shall be within our management capability

and financial resources.

To establish “PRIMA” and “FARMERS’ CHOICE” as a brand name

synonymous with the very best in high quality products.

To establish high standards of good corporate governance, improve

transparency and the standards of accountability to shareholders.

Brief History

Life began for Ceylon Grain Elevators PLC (CGE) way back in

December 1982, when the Government of Sri Lanka and Prima

Limited of Singapore inked an agreement beginning a partnership that

has endured two decades of yeoman service to the poultry industry in

the country.

Today, CGE is the largest operator in the poultry industry of Sri Lanka,

establishing 6 subsidiary companies operating not only in the field of

poultry, but also offering products and services in diverse fields.

CGE and the companies under its umbrella manufacture & distribute a

wide range of feeds under the “PRIMA” and “FARMERS’ CHOICE”

brands.

They also operate poultry and hatchery breeder farms, commercial

poultry and livestock farms. They also engage in the processing,

packaging and retailing of poultry and other meat products, the import

and sale of poultry equipment, veterinary products, produce aqua feed

and provide a state-of-the-art laboratory and consultancy service to

customers and farmers throughout the island.

Ceylon Grain Elevators PLC subsidiaries are:

• Three Acre Farms PLC

• Ceylon Pioneer Poultry Breeders Limited

• Ceylon Livestock & Agrobusiness Services (Pvt) Limited

• Ceylon Warehouse Complex (Pvt) Limited

• Ceylon Aquatech (Pvt) Limited

• Millennium Multibreeder Farms (Pvt) Limited

Ceylon Grain Elevators PLC associate companies are:

• Ceylon Agro Industries Limited

• Prima Management Services (Pvt) Limited

Our Vision“To achieve complete poultry integration

synergies, ultimately gaining export market

competitiveness”

Our MissionTo tap and harness business opportunities by expanding into

various vertical integration projects.

This will lead to increase in Agriculture, Aquaculture and Livestock

production, thus encouraging national progress through nutritious

protein-rich food to the people of this Nation.



Ceylon Grain Elevators PLC | Annual Report 2010

1

G r o w i n g W i t h

C o n f i d e n c eThe past year has seen Ceylon Grain Elevators PLC reap the fruits of innovation, efficiency and hard work put in

during difficult times. In 2010, we have proven again that we look beyond profit making and go an extra mile to

bring only the best for our stakeholders.

While our financial performance has reached new heights, we continue to focus on discovering new directions and

horizons. With the current stable and favorable economic climate, this is the optimal time for us to grow using the

opportunities presented to us. Our products have continued to be the favorites among our valued customers, at a

competitive price, exemplary quality and act as our foundation for future growth.

Over the past years, Ceylon Grain Elevators PLC has grown with abundance through creativity, innovation and

perseverance. The Company is now geared to provide sustained value to our shareholders.

In 2010, CGE is growing with confidence…

CONTENTS

2 - Chairman and Chief Executive

Officer's Review

5 - Management Discussion and Analysis

9 - Human Resources Review

10 - Corporate Social Responsibility Review11 - Corporate Governance

14 - Audit Committee Report

15 - Remuneration Committee Report

16 - Board of Directors

17 - Risk Management Review

20 - Report of the Directors on the State of

Affairs of the Company

23 - Statement of the Directors’ Responsibility

24 - Independent Auditors’ Report25 - Income Statement

26 - Balance Sheet

27 - Statement of Changes in Equity

28 - Cash Flow Statement

29 - Notes to the Financial Statements

60 - Five Year Financial Summery

61 - Group Structure

62 - Shareholder Information

63 - Statement of Value Added64 - Notice of Meeting

Enclosed - Form of Proxy




2

Dear Shareholder,

It is with great pleasure that I

present you the Annual Report and

the audited financial statements of

Ceylon Grain Elevators PLC (CGE)

and its subsidiaries for the financial

year ended 31st December 2010

and inviting you for the 28th Annual

General Meeting, which will be held

on 21st April 2011 at the ICASLAuditorium, 30A, Malalasekara

Mawatha, Colombo-07 at 10.00 a.m.

When a tornado strikes, only the most

firmly rooted structures can withstand

its force. Flimsier the foundations, the

greater the damage will be. In 2009,

economies of all size across the

world felt the tornado-like force of the

financial crisis. The battering taken

by the world economy was as bad

as anything in the last 70 years and

countries and all industries struggled

to weather the storm created by the

financial crisis. Fortunately CGE is

Chairman and Chief Executive Officer’s Review

We have added four new and modern environ-

mentally controlled broiler houses during the same

period, and will continue to increase our farm

capacity in the coming years.

anchored on strong foundations.

During 2010, CGE increased its profits

by several folds, demonstrating the

resilience of the company to weather

difficult times and to recover rapidly.

The year under review has been about

leading the CGE through the post

recession and recovery without losing

sight of our long-term plans and core

values.

Global Recovery

Output growth in most major

advanced economies collapsed at

the end of 2008 as the financial crisis,

which followed the bankruptcy of the

US investment bank Lehman Brothers,

hit confidence, trade and credit.

Through the first half of 2009,

North America, Europe and the UK

experienced the deepest recessionssince the 1930’s, with unemployment

reaching 10% of the workforce in both

the United States and Europe, and

government debt vastly increasing due

to bailouts and stimulus packages. A

slow but durable economic recovery in

North America, and to a lesser extent

in the UK and Europe, became evident

by 2010. The expansion was slower in

the mature industrial economies than

in emerging economies, a divergence

that is expected to continue.

Moving into 2010, almost all economiesstarted once again expanding, with

nearly all the emerging economies

of Asia, South America and Eastern

Europe expanding somewhat faster.

In the three major mature economies

of Japan, the US and Germany, capital

goods orders are rebounding, profit

shares were increasing and consumer

confidence is beginning to recover.

China, the second largest economy

in the world, expanded at just below

12 per cent in the year to March 2009.

Even so, there remains some hesitancy

in global growth forecasts. Most of




3

Chairman and Chief Executive Officer’s Review Cont.

the developing world has weathered

the financial crisis well, and, by the

end of 2010, many emerging market

economies had recovered or were

close to resuming the growth potential

they had attained prior to the crisis.

In the back drop of market recovery,

increase of human population have

taken place and will continue to

maintain its growth uninterrupted for

the next two decades. In Asia this

growth will be seen at 26% setting

the necessary background to house

an estimated 86% of the world

population by 2030. All-in-all it will be

a challenging effort to accommodate

an estimated 8.1 billion people by

2030 and catering to their food

requirements.

Meat consumption has a strong

correlation with the GDP per capita.

With the increase of purchasing power

the consumption of meat and poultry

products tends to go up in tandem. In2010 the world GDP per capita grew to

US$ 5,611 pushing the consumptions

to 38Kg per person. In 2030, GDP per

capita is expected to reach US$7,600

where the consumption could go as

high as 45Kg per person opening

doors much wider for us.

Sri Lanka

Sri Lanka has been one of the few

countries that enjoyed a significant

growth (8%) in 2010. There have been

considerably improved performances

in all sectors and the country returned

to the high growth trajectory, which is

encouraging.

The policies implemented by the

Central Bank of Sri Lanka have borne

fruit by gaining economic and price

stability, average inflation, come back

to a low interest regime, historically high

foreign reserves, stability of exchange

rates assuring people to continue in

their business with a strengthened

rupee, fiscal consolidation, decline in

unemployment rate, rapid decrease

in poverty, attain “middle income

emerging market country” status,

upgrade sovereign credit ratings,

doubling the GDP from US$24 billion

in 2005 to US$50 billion. There has

been a sharp increase in the GDP

at current prices and at purchasing

power parity. The per capita income

has reached almost US$2,400.

A commendable performance was

seen in all sectors. Agriculture grew

at 6.3% due to favorable weather

conditions, attractive prices,

improvement in support services,

continuation of fertilizer support

program of the government, and

significant contribution from the

Northern and Eastern provinces

which is an excellent beginning. The

industry sector has grown by 8.7%

and the services sector experienced a

7.9% growth. Key growth areas in the

services sector were tourism, hotels

and restaurants. Up to November last

year the tourist arrivals have increased

by 46%.

With the market recovery the domestic

per capita income has also increased

improving the purchasing power of Sri

Lankans. Expenses on food play a key

role in all these purchases. Currently

consumption of chicken meat for

Sri Lanka is approximately 5Kg per

person. With the fast development

and change in lifestyle as well as the

purchasing power; we expect the

consumption will increase to more

than 8 Kg per capita within the next

five years, which is highly favorable

for the local poultry industry in general

and CGE in particular.

Challenges for us

During the year under review, the

local market experienced shortage

in supply of layer chicks and chicken

meat during the first half of 2010.

This is the consequence of the glut

in DOC supply in 2009, during then

all the breeder farms incurred huge

losses and were forced to scale down

their DOC production. The import

restriction and high import CESS on

maize also deprived feedmillers from

optimising their cost of production.

Local farmers also took advantage of

import restriction to manipulate supply

to the market, although they have no

proper storage facility. As a result the

price of local maize shot up from Rs.

34 per kg in March to Rs. 42 per kg in

4th quarter last year. This led to high

cost of production, which would have

to be passed down to the consumers

eventually. CGE purchased more than

35,000 mt of local maize in 2010.

Our operations

We foresee the local poultry industry

to grow in tandem with the per capita

income, and we need to be ready

for this by continually improving our

capacity and capability.

In 2010, CGE has obtained the

ISO9001-2008 certification awarded

by SLSI. This will lay a solid foundation

for other productivity improvement

initiatives. We have added four

new and modern environmentally

controlled broiler houses during the

same period, and will continue to

increase our farm capacity in the

coming years. The Company also

recognises the importance of accurate

and timely information for businessesefficiency and decision making. In

view of this, we have further enhanced

our Enterprise Resource Planning

(ERP) system through the addition of

Business Intelligence (BI) tools. This

enables us to organise data into useful

information for analysis.

Financial Review

Our financial accomplishments for the

year under review recorded revenue

of Rs. 8,009.41 million, which is an

increase of 16% against Rs. 6,899.32

million in 2009. The overall gross profits




4

Chairman and Chief Executive Officer’s Review Cont.

increased by 145% to Rs.848.23

million from Rs.346.73 million. With

stringent cost control measures, and

prudent treasury management CGE

was able to maximize its profits. During

the year in focus the Sri Lankan Rupee

appreciated from Rs.113/- to Rs.110/-

against the US dollar. The average

bank interest rates were hovering

around 9.0%. These are some of the

key factors that kept our financial

costs low. The operating profits were

Rs.592.08 million.

As a result of both macro and

micro economic conditions as well

as the favorable global financial

recovery your company has reported

Rs. 474.89 million in profit after tax

attributable to equity holders for the

year ended 31st December 2010,

compared to Rs. 133.87 million

reported in year 2009.

Future

With Sri Lankan economy predictedto reach over 9% p.a. growth during

the next few years CGE is optimistic

about its growth potential. We hope

that infrastructure development will

continue as expected during 2011

allowing new markets to come up

throughout the country while creating

necessary background for new farms

to be established, especially in the

North and East of the island.

Dividends

I am pleased to announce that the

Board of Directors recommends afirst and final dividend of Rs. 1.00

per share for the financial year ended

31st December 2010, subject to the

approval of the shareholders at the

forthcoming Annual General Meeting.

This would entail a maximum dividend

payout of Rs. 60 million for year 2010.

As we are in the process of expanding

our capacities , we trust our decision

will be understood and appreciated

by shareholders as being one that will

bode well for the Group in the future.

Acknowledgements

Finally on behalf of the Board of

Directors I take this opportunity to

thank you for the trust placed on

CGE as its valued shareholders.

I would also like to express my

sincere appreciation to our dedicated

employees, growers and customers

for their determination during 2010

and the continued support given to

meet the high growth standards. I

wish to convey to all our shareholders

and investors the future is bright for

CGE and lot of potential waits to be

exploited in the coming years.

Cheng Chih Kwong, Primus

Chairman & Chief Executive Officer

Colombo, Sri Lanka

21 March 2011




5

Management Discussion and Analysis

Industry Overview

The economy of Sri Lanka bounced back after decades

showcasing a significant growth, which is estimated at 8%

in 2010. It is for the first time in the history the island nation

enjoyed the benign macro economic fundamentals while

double its growth compared to year before. During the first

half of last year the growth was maintained at 7.8% compared

to 1.9% recorded during the corresponding period of 2009.

The improved performance in all key sectors of the economy

contributed towards this growth.

Inflation has continued to remain at relatively low and stable

levels since early 2009. On a year-on-year basis, inflation was

5.8% in September 2010. Demand management policies aswell as improved domestic supply conditions and supportive

fiscal policies have helped maintain inflation at subdued

levels. Inflation, on a year-on-year basis, is expected to

remain within single digits at around 6% at end 2010.

The agriculture sector contributes around 16.8 percent of

National Gross Domestic Production (GDP). The livestock

sub sector contributes around 1.2% of National GDP

supported by some 1.5 million cattle, 0.3 million buffalo, 13

million poultry, 0.8 million pigs in the country with negligible

number of sheep, ducks other species. Livestock are spread

throughout all regions of Sri Lanka with concentrations of

certain farming systems in particular areas due to cultural,market and agro climatic reasons.

About 70% of the contribution to livestock sub-sector in Sri

Lanka comes from chicken meat and eggs. Chicken meat

and eggs remain the cheapest source of animal protein.

With the country’s economy progresses, the domestic per

capita income will also increased improving the purchasing

power of Sri Lankans. Expenses on food play a key role in

all these purchases. Currently the annual consumption of

chicken meat for Sri Lanka is approximately 5Kg and 57

eggs per person which is relatively low compared with other

developing countries in Asia. With the fast development and

change in lifestyle as well the purchasing power; we expect

the consumption to increase exceeding 8Kg per capita

within the next five years, which is highly favorable for the

local poultry industry in general and CGE in particular.

During the year under review, the local market experienced

shortage in supply of layer chicks and chicken meat in the

first half of 2010. This is a consequence of the glut in Day Old

Chicks (DOC) demand in 2009, during then all the breeder


Animal PopulationPoultry 13,000,000

Cattle 1,500,000

Pigs, goats & sheep 800,000

Buffalos 300,000

Source - Ministry of Livestock and Rural Community Development




6


Feed Milling

Feed milling is the Group’s largest sector, accounting for

61% of the Groups revenue. The sector faced many daunting

challenges during the year. Though the Government’s policy

of restricting maize imports was aimed at assisting the local

maize grower, the policy also allow maize farmers to take

advantage of the import restriction to manipulate supply and

price. In addition, due to poor post harvesting practices and

lack of storage facilities, a large proportion of the maize sold

locally is not of the desired quality.

Presented with a challenging environment and contracting

market, CGE marshalled its feed milling segment around

cost-cutting through creative formulation, productivity andmanufacturing quality improvements. As a result, the Group

was able to increase its market share to 32% (as of Dec’10)

and firmly maintaining its market leadership.

The segment saw an impressive turnaround in its Earnings

before Income and Taxes (EBIT) to Rs.145 million. This is a

marginal improvement from the Rs.142 million recorded in

2009. The improved results stand witness to the Company’s

commitment to seize opportunities in challenging times.

(Rs' 000) 2010 2009 Change

%

Sales Value 5,579,617 4,897,282 13.93%

EBIT 144,568 141,508 2.16%

Total assets 3,391,159 4,011,370 (15.46%)

Return on

total assets

employed

4.3% 3.5% 20.68%

Segment Sales Value 2010(Rs’ 000)

2009(Rs’ 000)

Feed milling 5,579,617 4,897,282

Poultry breeder farmingoperation

1,157,777 836,457

Broiler farming andprocessed chicken sales

2,227,544 2,050,456

Poultry equipment 114,902 100,600

Silo & warehouse complexrental income

61,704 62,838

farms incurred huge losses and were forced to scale down

their DOC production.

The government imposed a 20% cess on the imported maize

to influence a better producer price for maize growers. There

is a greater interest now by the private sector in maize growing

using contract farmers and this will soon have a positive

effect on the poultry industry. The import restriction and

high import CESS on maize has deprived feed millers from

optimizing their cost of production. Local maize farmers also

took advantage of import restriction to manipulate supply to

the market, although they have no proper storage facility. As

a result the price of local maize has shot up from Rs. 34 per

kg in March 2010 to Rs. 42 per kg in 4th quarter 2010. last

year. This leads to high cost of feed production, which will

have to be passed down to the consumers eventually. CGE

has purchased more than 35,000 mt of local maize in 2010

to support of the government’s initiative.

All-in-all 2010 was a challenging but good year for the local

poultry industry.

Segmental Review

During 2010, CGE increased its profits by several folds,

demonstrating the resilience of the company through difficult

times. The year under review has been about leading the

CGE through the post recession and recovery without losing

sight of our long-term plans and core values.

Animal Number

Cock Birds 1,966,780

Hens 7,433,910

Chicks 4,617,630

Ducks 13,485

Source – Department of Census and Statistics 2010




7


Broiler Farming and Processed Chicken Sales

Broiler Farming and Processed Chicken Sales is the Group’s

second largest revenue generator during financial year 2010.

The sale of processed chicken has increased from Rs. 2.0

billion in 2009 to Rs. 2.23 billion in 2010, contributed 22% of

the Group’s turnover. The continued challenge for the sector

is the Government mandated maximum retail price (MRP).

During the year 2010 the government allowed the maximum

retail price to be increased from Rs. 320/- to Rs. 350/- per kg,

which helped the industry to sustain their business.

The total production for the year was healthy, with a significant

increase in the EBIT from Rs. 81.6 million in 2009 to Rs.137.6

million in 2010. This is an increase of over 69%. The goodresult is attributed to our increased focus on value added

products as well as better trade and distribution efforts to

increase sales.

Breeder Farming Operations

The sale of Day Old Chicks (DOC’s) is a significant part of

the Group’s operations contributing 9.2% of Group turnover

in 2010.

This segment is made up of the sale of Broiler and Layer

DOC’s. The shortage of DOC for both the broiler and layer

during certain part of the year has driven the price of DOC

to a record high. This has prompted the government to

encourage importation of layer hatching eggs to increase

supply of layer DOC during 4th Quarter 2010.

The sales revenue was up by 38% from Rs.836.46 million in

2009 to Rs.1,157.78 million in 2010. Various breeder farmshave since increased their input and we expect a better

balance in the supply and demand of DOC in 2011, which

will lead to normalization of DOC prices.

(Rs' 000) 2010 2009 Change

%

Sales Value 2,227,544 2,050,456 8.64%

EBIT 137,614 81,599 68.65%

Total assets 394,139 325,296 21.16%

Return ontotal assets

employed

34% 25% 39.19%

(Rs' 000) 2010 2009 Change

%

Sales Value 1,157,777 836,457 38.41%

EBIT 244,731 (197,702) NA

Total assets 1,980,071 1,872,566 5.72%

Return ontotal assets

employed

12.4% -10.6% NA




8


Poultry Equipment

The poultry equipment segment of the Group’s operations

serves to supply related poultry equipment, vaccines

and drugs to the industry. During the year under review

the segment recorded an EBIT of Rs.13 million against

Rs. 2 million reported in the previous year. Going forward,

the Company plans to further increase the growth and profit

in this segment. Sales value saw a slight increase from

Rs.101 million in 2009 to Rs. 115 million in 2010.

Silo & Warehouse Comple

The Company’s state of the art silos and warehouses provide

a distinct advantage for the Group, enabling us to exercise

great flexibility in the storing and purchasing of key raw

materials. Purchasing in bulk also ensures a better priceadvantage. During the year of reduced imported raw material,

the segment saw a lower rental income in conjunction with

an added inventory cost burden. Rental Income fell by 1.8%

from Rs. 63 million in 2009 to Rs. 62 million in 2010. For 2010

the segment’s EBIT saw a decrease of 11.65% from Rs. 40

million in 2009 to Rs. 35 million in 2010.

Ceylon Grain Elevators PLC remains focus on the key

areas for success in our business - efficient operations; a

favourable product mix and a disciplined growth strategy;

exceptional customer service, strong product brand anddistribution network along with the highest quality products

available in our industry; and a strong financial position.

With these we are well positioned for continual growth in the

coming years.

(Rs' 000) 2010 2009 Change

%

Sales Value 114,902 100,600 14.22%

EBIT 13,059 2,073 529.96%

Total assets 32,706 31,567 3.61%

Return on

total assets

employed

39.9% 6.6% 507.76%

(Rs' 000) 2010 2009 Change%

Rental Income 61,704 62,838 (1.80%)

EBIT 35,301 39,957 (11.65%)

Total assets 428,008 438,994 (2.50%)

Return on

total assets

employed

8% 9% (9.38%)





9

Human Resources Review

We at Ceylon Grain Elevators PLC

recognize Human Resources as one

of our most imperative resources and

always strive to maintain a ‘Healthy

Organization’ in line with the “Prima

Family” concept which is also one of

our corporate philosophies.

Recognizing the value and importance

of a well trained and skilled staffer

CGE has conducted training sessions

for over 300 man-days in 2010.

Group continued to invest more time,

expertise and money for the learning

and development of its employees in all

categories both locally and overseas.

To foster employee participation and

contribution in decisions that affects

their work, the Group facilitates the

functioning of the Employee Council

with regular meetings through which

we continuously emphasize the need

for safe working environments for

all our employees. With respect to

non-financial rewards, the Group

continues to provide a host of welfare

benefits that ensure employees are

truly rewarded beyond industry norms.

Looking to the future, CGE’s focus

is on providing its employees with

greater opportunities for training and

development so as to enable them

to reach and operate at their full

potential. We are also in the process of

identifying and nurturing successors

for key positions in the Company. With

this objective in view, we have aligned

the performance appraisal system

with Prima Group, Singapore and a

clearly defined career path geared to

retain and nurture talent.

Staff Analysis by Gender Staff Analysis by Age Staff Analysis by Designation

Training Programmes for Employees

60yrs and above

51yrs to 60yrs

41yrs to 50yrs

31yrs to 40yrs

21yrs to 30yrs

Below 21yrs

NonExecutives

Snr. Executives &Exes

Managers &Asst.Mgrs

Snr. Managers &above

Male

Female




0

Corporate Social Responsibility Review

Corporate Social Responsibility (CSR)

is an integral part of what we do at

CGE. Our objective is to serve major

proportion of society in the localities of

CGE installations, and to make them

benefit from our CSR initiatives.

Product Leadership

We at CGE aim to provide continuous

assurance in relation to the safety of our

customers and consumers by offering

products of the highest standard. To

achieve this task, we have set strict

safety standards for our operations,

complying with statutory regulations

such as the Animal Feed Act and

other international standards such as

HACCP. In 2010 CGE has obtained the

ISO9001-2008 certification awarded by

SLSI. Our aim is to go beyond, always

delivering a product of exceptional

quality.

A Sustainable Poultry Industry

We aim to contribute to the food security

of Sri Lanka. Being the largest player

in the poultry industry, we continue to

provide the industry with quality feed,

chicks, processed chicken and poultry

equipment. Over the years, we have

invested in enhancing the technical

knowhow in the industry, by sending

our employees and partners to various

technical symposiums and seminars

which has also contributed greatly in

helping farmers to improve production

yield by means of technical assistance

and knowhow transfer.

People and Communities

We believe in contributing towards

the benefit of local communities

where we operate by helping people

to augment their living standards.

In villages surrounding our farms in

Bulathsinghala and Beruwala, we have

provided assistance two key projects.

CGE together with the Bulathsinghala

Pradeshiya Sabah embarked on a road

development and upgrade project in

2010. The scope of this project was to

upgrade the Egal Oya road of 1.8 km

leading to Rajalimanna village, which

is off the main Bulathsinghala highway.

The Rajalimanna village lies adjacent

to the Bulathsinghala farm and theupgrading of this road will greatly

benefit the people of the area.

CGE also partnered with the Beruwala

Pradeshiya Sabaha in its second CSR

project. In this project the Company

funded the cost of building material

for the construction of the new public

library in Beruwala.

The Group’s ongoing commitment to

Junior Cricket continued through to

its second year, in 2010 as well. The

Under 15 Prima Champions Trophy is

a district tournament organized by Sri

Lanka Cricket with the aim of providing

opportunities for a well rounded

education for Sri Lankan children.

Environment

Throughout the years, we have

remained committed to protecting

the environment in and around our

installations, especially in our poultry

farms. The Company’s poultry farms

operate under a Central Environmental

Authority (CEA) license which stipulates

the national standard, and monitor

compliance by regular inspections.

All of CGE farms conform to stringent

waste management protocols, hygieneand sanitation standards.

Under 15 Prima Champions Trophy

New Public Library in Beruwala Egal Oya Road Construction Taking Place in

Bulathsinghala




11

Corporate Governance

Ceylon Grain Elevators PLC is

committed to adhering to the

highest ethical standards and your

Board of Directors are committed to

ensuring that the Group has a robust

governance structure in place. This

structure, the comprehensive set

of rules and guidelines, ensures

that we act with integrity, fairness,

transparency and responsibility at all

times in keeping with the trust of our

shareholders, customers, employees

as well as other stakeholders. The

Board believes that any system

which is adopted must also reflect

necessary standards of governancefor the Group and its corporate social

responsibilities. The Board also

sincerely believes that the systems in

place must meet those requirements.

The Group governance structure

fully reflects the best practices of

good corporate governance as

published by the Institute of Chartered

Accountants of Sri Lanka.

Board of Directors

The Board of Directors are responsible

to shareholders for ensuring that the

Group is appropriately managed

and that it achieves its objectives.

It meets regularly to determine the

Company’s strategic direction, to

review the Group’s operating and

financial performance and to provide

oversight that the Group is adequately

resourced and effectively controlled.

Role and Function of the Board of

Directors

The role and function of the Board of

Directors addresses a wide range of

supervision and corporate governance

issues. All members of the Board take

collective responsibility for the overall

management and performance of the

Group. The Board’s principal role and

functions are listed below.

Strategic Direction

The Board is responsible for

establishing corporate policies, overall

strategic objectives & corporate plans

and providing general direction to

the Company and Management

Committee. The Group has laid down

schedule of issues and decisions

which may only be approved by the

Board as monitoring controls. These

include approval by the Board on

all matters relevant to an overall

strategy, annual budget, business

plan, management information,

reported financial statements,

dividends, investments and business

acquisitions.

The Directors also review and monitorthe Group’s performance against set

objectives on an ongoing basis and

direct the management committee onspecific action points.

Communication with Shareholders

The Group places considerable

importance on communication withshareholders and engages with themon a wide range of issues.

The Board bears the responsibilityof reporting statutory and relevant

information to shareholders in atimely and accurate manner. To

ensure transparency at all times,the Board has laid down policiesin relation to the keeping of proper

books of accounts and preparation of

financial statements so as to give anaccurate and fair picture of the statusof the Group. Quarterly and annualresults are prepared and presented

in accordance with the Sri LankaAccounting Standards, the CompaniesAct No. 07 of 2007, Colombo StockExchange and Securities & Exchange

Commission regulations.

Risk Management

Board members evaluate the Group’srisk factors and current control systemsand make policy recommendations

on risk elements and improvement ofcontrols.

The Board oversees the setting upof the Risk Management Process so

that there is an ongoing system inplace for identifying, evaluating andmanaging the significant risks facedby the Group in protecting its assets

and processes. The risk managementprocess is regularly reviewed by theBoard on the basis of the guidelinesset by the relevant regulatory bodies.

The Board of Directors, whilst

maintaining its overall responsibilityfor managing risk within the Group,

has delegated the detail, designand operation of the system ofinternal controls to the ManagementCommittee.

Ceylon Grain Elevators PLC hasin place a well designed controlframework comprising of clear

structures and accountabilities, wellunderstood policies, procedures andbudgeting & review processes. Eachbusiness segment of the Group has

a formal management structure with

clear definition of responsibilitieswhich operates within well definedpolicies, covering the areas of

product safety, financial matters,health and safety, the environment,human resources, operations matters,purchasing and engineering.

Compliance

The Board is responsible for

ensuring that the Group is in alwaysin compliance with laws, regulationsand other standards as laid downby regulatory bodies of the country.

The Board is regularly updated withinformation pertaining to complianceand directs the ManagementCommittee with regard to requiredaction steps.




2

Corporate Governance Cont.

Appointments to Board Committees

The Board of Directors are responsible

for appointing members to the various

Board Committees and ensure the

Committees act as per Terms of

Reference provided by the Board.

The Board appoints Directors to the

Audit and Remuneration Committee.

The Board also appoints Directors

and key senior management staff to

the Management Committee. Each

Committee acts by its own set of

Terms of Reference. An expanded

review of each Committee functionsis provided further down in this report.

Board Composition

The Board of Directors comprises of

six (6) members. CGE is committed

to having a balanced Board to

ensure long-term value addition for

all stakeholders. The Group believes

the correct mix of Executive, Non-

Executive and Independent Non-

Executive Directors with an intimate

knowledge of the industry and

business will enable the Company tomake better decisions. In keeping with

this belief, the Board is comprised of

two (2) Executive Directors, two (2)

Non-Executive Directors, and two (2)

Independent Non-Executive Directors.

The Board composition complies with

the Listing Rules of the Colombo

Stock Exchange, which requires

composition of a minimum of 2 or 1/3

of the Board to be Independent Non-

Executive Directors. A brief profile of

each Board member is presented onpage 16 of this report.

Board minutes and reports are

circulated prior to Board meetingsso as to enable the Directors to studyand familiarise themselves with theinformation beforehand. The Directors

seek clarification or amplificationwhere necessary.

Board Committees

To ensure a good governancepractices within the Group, theBoard of Directors have established

special committees at the Boardlevel to monitor, review and enhanceaccountability. These Board

Committees of CGE are as follows;

· Management Committee· Audit Committee· Remuneration Committee

These Committees carry out theirduties and responsibilities as perTerms of Reference set out by the

Board. The proceedings of themeetings are regularly communicatedto the Board.

Board Meetings

The Board met once during the yearto discuss and review the overall

strategic development of the Group.The Chairman is responsible forleading the Board, facilitating theeffective contribution of all members,

leading the business, implementingstrategies and ensuring that the Boardoperates effectively in the interests ofshareholders.

The Company Secretaries, SSPCorporate Services, are responsible,on behalf of the Chairman, for ensuring

that all Board meetings are properly

conducted and that Directors receiverelevant information prior to themeetings. They also guide the Board

in ensuring that good governancerequirements are considered andimplemented.

At Board meetings the Group GeneralManager updates the Board oncurrent business matters and reportson the latest financial position. The

Board reviews the key performanceindicators. (KPIs)

The Management Committee

The Management Committee isresponsible for implementingthe Group strategy, monitoringbusiness performance, approving

The Chairman of the Board

The Chairman of the Board is Mr.Cheng Chih Kwong, Primus. He is theExecutive Chairman. The Chairman is

responsible for leadership of the Boardand ensuring its effectiveness on allaspects of its role. He chairs Boardmeetings and provides direction

during meetings. He is responsible forthe Board’s composition and focus.The Chairman facilitates the effectivecontribution of Non-Executive

Directors in particular and ensurespositive relations between Executiveand Non-Executive Directors. With

a view to have a proper balance ofpower on the Board, the posts ofChairman and Executive Directorhave been separated with clear rolesdefined for each.

Training and Development

The Board believes strongly in the

development of all members ofits team, including Directors. Oninduction, each new Director goesthrough an induction programme

to ensure that he has the requiredknowledge base to carry out his

functions effectively. The programmeis conducted over a series of months

with presentations from key membersof senior management and visits to theGroup’s main operating businesses.Further follow-up meetings are

arranged where a Director requires adeeper understanding on a particularitem.Supply of Information

Board members are supplied withinformation in a timely, accurate& comprehensive manner so as

to discharge its duties effectively.

Name of Director Capacity Shareholding

Mr. Cheng Chih Kwong,

Primus

Executive

Chairman

397

Mr. Tan Beng Chuan Executive Director & Group

General Manager

Nil

Mr. Cheng Chih Cheng,

Robert

Non-Executive Director 397

Mr. Cheng Chih Hui,

Peter

Non-Executive Director 397

Dr. Wickrema Sena

Weerasooria

Independent Non-Executive

Director

Nil

Mr. Sunil

Karunanayake

Independent Non-Executive

Director

Nil




13

Corporate Governance Cont.

budgets and capital expenditure for

recommendation to the Board and

ensuring efficient management of the

Group.

The Management Committee is

selected and appointed by the

Board of Directors. The Board has

delegated adequate authority to the

Management Committee in order to

implement the Board decisions and

the Committee exercises this authority

within the policy framework stipulated

by the Board.

The Management Committee meetsonce a month to discuss and evaluate

the segmental performance of the

group, business development plans,

financial and operating budget

and forecasts, capital expenditure

proposals, management issues and

key performance indicators (KPI).

Reports from the Management

Committee on segmental performance

are reviewed by the Board. The Board

also receives regular reports fromexecutives and sectional heads onkey risk areas.

In addition to mentioned corporateguidelines, the ManagementCommittee has the freedom to run thebusiness as they deem fit to meet the

demands of the Group’s customersand the strategic & financial targetsthat have been set by the Board. Thederegulated structure enables the

Group to take decisions quickly, toinnovate at a speed demanded bythe customer and to give customers a

product and service that is tailored totheir requirements.

Remuneration Committee

The Remuneration Committeeis responsible to the Board fordetermining the remuneration policyfor Executive Directors and SeniorManagers. The detailed Remuneration

Compliance Status with the Corporate Governance Rules of the Colombo Stock Echange (Section 7 of the Listing

Rules of Colombo Stock Exchange.)

Committee report appears on page 15

of this Report.

Audit Committee

The Audit Committee is responsiblefor assisting the Board of Directors infulfilling its oversight responsibilitiesin the financial reporting process.The detailed Audit Committee reportappears on page 14 of this Report.

Going Concern

The Group has considerable financialresources together with a diversified

business model, with a spread ofbusinesses. After making enquiries,the Directors have a reasonableexpectation that the Company andthe Group as a whole have adequateresources to continue in operationalexistence for the foreseeable future.For this reason, they continue to adopt

the going concern basis in preparing

the accounts.

Corporate Governance Principle Compliance Details

Non-Eecutive Directors

Two or one third of the total number of Directors shall beNon-Executive Directors, whichever is higher.

Four of the Directors are classified as Non-ExecutiveDirectors (out of a total of six)

Independent DirectorsTwo or one third of Non-Executive Directors which ever ishigher shall be independent.

Each Non-Executive Director should submit a declarationof independence/ non-independence in the prescribedformat.

Two of the Directors are classified as IndependentDirectors (out of a total of six).

Each Non-Executive Director has submitted hisdeclaration of independence in the prescribed formto the Board.

Disclosure relating to Directors

Names of independent Directors should be disclosed inthe Annual Report.

A brief resume of each Director should be included in theAnnual Report including the area of Expertise.

The names of the Independent Directors are providedon page 16 of the Annual Report.

A synopsis of the Directors is provided on pages 16of the Annual Report.

Disclosure relating to DirectorsThe basis for the Board to determine a Director isIndependent, if criteria specified for Independent is notmet.

The Board has determined that only Two of the NonExecutive Directors out the Six satisfy the criteria for“Independence” as set out in the Listing Rule.

Remuneration Committee

A Listed Company shall have a Remuneration Committee.The Committee shall comprise of Non-Executive Directors.A majority of who shall be independent.

The Committee consists of three members of whichtwo are Independent Non-Executive Directors.

Please refer page 15 of the Annual Report for moredetails on the Committee and its functions.

Audit CommitteeA Listed Company shall have an Audit Committee. Shallcomprise of Non-Executive Directors majority of whom

shall be independent. Chairman of the Committee shouldbe a Member of a recognized professional accountingbody.

The Committee consists of three members of whichtwo are Independent Non-Executive Directors. TheChairman of the Committee is also a member of a

recognised accounting body (ICASL).

Please refer page 14 of the Annual Report for moredetails on the Committee and its functions.




4

Audit Committee Report

The Audit Committee is responsible for maintaining

an appropriate relationship with the Group’s external

auditors and for reviewing the Company’s internal financial

resources, controls and the audit process. The Committee

assists the Board in seeking to ensure that the financial and

non-financial information supplied to shareholders presents

a balanced assessment of the Company’s position.

The members of the Audit Committee are appointed

by the Board of Directors from amongst the Directors of

the Company and consist of two (2) members. Both the

members of the Audit Committee are Independent Non-

Executive Directors, including the Committee Chairman.

In addition, Mr. Sunil Karunanayake is a Member of the

Institute of Chartered Accountants of Sri Lanka. The

composition of the Committee fulfils the requirements set

out by the Listing Rules of the Colombo Stock Exchange.

Meetings of the Audit Committee were held at such times as

the Audit Committee deemed appropriate and necessary.

It is required that the Committee meet at least once a year.

In the year under review the Committee met four (4) times.

Name Capacity No. of

meetings

held

No. of

meetings

attended

Mr. SunilKarunanayake

Chairman / Independent

Non-Executive

Director

4 4

Dr. Wickrema

Sena

Weerasooria

Mr. Darshana

De Silva

Member /

Independent

Non-Executive

Director

Secretary /

Group Internal

Auditor

4

4

4

4

The Company’s Internal Auditor acts as the Secretary to the

Audit Committee. The Executive Director of the Company,

Mr. Tan Beng Chuan , the General Manager, Mr. Tan Hoe

Lai, and the Financial Controller, Mr. K. A. R. S. Perera,

were also present at the meetings upon invitation.

During the year, the Audit Committee received reports from

and held discussions with management and the auditors.

In discharging its duties during the year the Committee

engaged in the following activities.

· The Committee has approved the auditors’ terms

of engagement, including their remuneration and in

discussion with them, has assessed their independence

and objectivity and recommended their re-appointment

at the annual general meeting.

· The Committee also reviewed;

· The financial statements published in the name of

the Board and the quality and acceptability of the

related accounting policies, practices and financial

reporting disclosures

· The scope of the work of the Group finance

department, reports from that department

· The effectiveness of the systems for internal control,

risk management and compliance with financial

services legislation and regulations

· The results of the external audit

· The reports from the internal and external auditors

on audit planning and their findings on accounting

and internal control systems

Sunil Karunanayake

Chairman, Audit Committee




15

Remuneration Committee Report

The overall remuneration policy of the Company aims to:

· Provide alignment between remuneration and the

Company’s business objectives, so as to attract and

retain executive management personnel of a high

caliber.

· Motivate executive management personnel to achieve

challenging performance levels and reward them for

doing so.

· Align executive rewards with shareholder value.

· Recognise both individual and corporate achievement.

During 2010, the Remuneration Committee reviewed

the incentive arrangements for senior executives andconcluded that the current framework was satisfactory.

The total of Directors’ remuneration paid during the

year under review is set out in Note 35 to the Financial

Statements.

Dr. Wickrema Sena Weerasooria

Chairman, Remuneration Committee

The Remuneration Committee is responsible to the Board

for determining the remuneration policy for Executive

Directors and senior managers.

The members of the Remuneration Committee are appointed

by the Board of Directors from amongst the Directors of the

Company and consist of two (2) members. Both members

of the Remuneration Committee are Independent Non-

Executive Directors. The composition of the Committee

fulfils the requirements set out by the Listing Rules of the

Colombo Stock Exchange.

Meetings of the Remuneration Committee were held at such

times as the Remuneration Committee deemed appropriate

and necessary. It is required that the Committee meet atleast once a year. In the year under review the Committee

met four (4) times. During its deliberations, the Committee

sought inputs and for some meetings invited the Company’s

Executive Director, General Manager and Financial

Controller.

Name Capacity No. of

meetings

held

No. of

meetings

attended

Dr. WickremaSena

Weerasooria

Chairman / Independent

Non-Executive

Director

4 4

Mr. Sunil

Karunanayake

Mr. M. C. M.

De Costa

Member /

Independent

Non-Executive

Director

Secretary /

AGM (Person-

nel, Security &

General Affairs)

4

4

4

4




6

Board of Directors

Mr. Cheng Chih Kwong, Primus

Chairman and Chief Executive Officer

Mr. Cheng Chih Kwong, Primus is the

Chairman of the Prima Group and

its subsidiary companies. He is a

Certified Practicing Accountant (CPA)

- Australia and also holds a Diploma

in Business Studies. Mr. Cheng Chih

Kwong, Primus is the Patron of Yunhua

Citizens’ Consultative Committee and

has served has the former Patron of

the Ulu Pandan Community Centre

Building Fund Committee (1996) and

as the Vice-Chairman (general Affairs

Committee), Singapore Chinese

Chamber of Commerce & Industry.

Mr. Tan Beng Chuan

Executive Director & Group General

Manager

Mr. Tan Beng Chuan has been a

Director of the Company & its subsidiary

companies since 2003. He serves as

a Director of Three Acre Farms PLC

and its subsidiaries and also Ceylon

Agro-Industries Ltd since 2003. He is

the Group General Manager of Prima

Group of Companies, Sri Lanka since

2003. He holds a B.Sc. Hon in Chemical

Engineering from University of Surrey,

UK and a MBA in Management &

Marketing from University of Warwick,

UK. Mr. Tan Beng Chuan is currently

the President Mentor & ex President

of Singapore (Sri Lanka) Club and

Executive Committee Member of Sri

Lanka-Canada Business Council.

Mr. Cheng Chih Cheng, Robert

Non-Executive Director

Mr. Cheng Chih Cheng, Robert has

been a Director of the Company since

1983. He also serves as a Director

at Setia Pte Ltd (Singapore), Supra

Limited (Hong Kong), Supra Finance

(Hong Kong), Prima Ceylon Limited (Sri

Lanka), Cheng Wang Holding Limited

(Hong Kong), Hapiways Management

Services Pte Ltd (Singapore) and also

as the Assistant to the CEO at Prima

Limited (Singapore).

Mr. Cheng Chih Hui, Peter

Non-Executive Director

Mr. Cheng Chih Hui, Peter has been a

Director of the Company since 1995.

He also serves as a Director at Setia

Pte Ltd (Singapore), Supra Limited

(Hong Kong), Supra Finance (Hong

Kong), Prima Ceylon Limited (Sri

Lanka), Cheng Wang Holding Limited

(Hong Kong), Hapiways Management

Services Pte Ltd (Singapore) and also

as the Assistant to the CEO at Prima

Limited (Singapore).

Mr. Sunil Karunanayake

Independent Non-Executive Director

Mr. Sunil Karunanayake has been

a Director of the Company since

2009. He holds fellowships of the

Institute of Chartered Accountants

of Sri Lanka & Chartered Institute of

Management Accountants (UK) and a

MBA from the Post Graduate Institute

of Management of the University of

Sri Jayawardenapura. He has also

obtained a Diploma in Commercial

Arbitration from the Institute of

Commercial Law and Practice. Mr.

Sunil Karunanayake was formerly a

Director/Secretary of Brooke Bond

Ceylon Limited and Commercial

Controller of Unilever Ceylon Ltd -

Tea Division. Currently he serves

as the Chief Financial Consultant at

Associated Newspapers of Ceylon Ltd.

in addition, he also serves two other

listed companies in the capacity of

Non - Executive Director.


Independent Non-Executive Director


has been a Director of the Company

since 2009. He holds LLB (Hons.)

and Ph.D (London). He is an Attorney-

at-law - Supreme Court of Sri Lanka,

a Barrister and Solicitor - Supreme

Court of Victoria. Dr. Wickrema Sena

Weerasooria is the well known lawyer

and legal academic. He was formerly

Secretary of the Ministry of Plan

Implementation, Sri Lanka’s High

Commissioner to Australia, Consultant

to the Central Bank and a former

Associate Professor of Law Monash

University, Australia. He is currently a

Senior Consultant to the Post Graduate

Institute of Management (PIM).




17

Risk Management Review

The purpose of the Risk Management

Review of the annual report is to focus

on the risk management systems and

processes that are in place operation

across Ceylon Grain Elevators PLC

(CGE). The Risk Management Review

also aims to provide assurance that

the activities undertaken leads to the

consummation of an organization

which is progressing towards better

understanding and thereby more

efficient mitigation of various risk

factors.

Risk management can be definedas the systematic application of

management policies, procedures

and practices for the establishment

of relevant context, identification,

analysis, mitigation, monitoring and

thereby communication of all risks.

The risk management framework at

CGE is effectively integrated into

the planning process. This planning

process focuses on efficient delivery

and achievement of objectives via

effective mitigation of relevant and

related risks.

Risks are identified and evaluated

at appropriate levels throughout

the organisation through an agreed

process. The process is reviewed by

the Management Committee as part

of an the Company’s organisational

and operational approach to risk

management.

CGE’s risk management process

ensures thorough identification and

understanding of the risks to which

we are exposed. Our process also

guarantees that we create and

implement an effective plan to prevent

losses or pauperize the impact of

any loss in the event that it occurs.

The Group’s risk managementprocess includes strategies and

techniques targeted at recognition

and appropriate confrontation of these

threats.

The Group’s system of internal control

covers policies and procedures,

enabling significant strategic and

operational risks which require

efficient management. This includes

the system of financial controls which

operate throughout the Group, and

processes and systems which focus

on monitoring and reporting matters

related to the continuing effectiveness

of the system of internal controls.

The risk management process at

CGE provides a clear and structured

approach to identifying risks. Having a

clear understanding of all risks, allows

the Group to measure, prioritise and

thereby take the pertinent actions to

truncate losses. Risk management

has other benefits for the Group,

including saving resources such as

time, assets, income, property and

people, protecting the reputation

and public image of the organisation

and preventing or reducing legal

liability and increasing the stability of

operations.

To be effective, risk management must

be recognised as being an integral

part of good management practice

and should be part of an organisations’

business, and thereby become a part

of its practices, business planning

and continuity. When this is achieved,

risk management becomes a matter of

concern for individuals throughout the

organisation .CGE’s risk management

structure, its planning and reporting

systems and review processes provide

a robust and tenacious basis for the

integration of risk management into the

entity’s entire management process.

The principal risks associated with the

Group’s activities are:

Risk Factor Risk Mitigating Strategies

Echange Rate Risk

Exchange rate risk arises from negative changes in

exchange rates in terms of foreign currency transactions.

The Group imports a large percentage of raw materials and

possesses and also has substantial loans denominated in

foreign currencies. In the event of a decline in the value of

the Rupee against foreign currencies, there is an increase in

raw material prices affecting sales margins and increasing

in the debt burden in rupee terms.

As a policy, changes in the international prices of raw

materials are passed on to the selling prices of the Group’s

products in the domestic market. This in effect provides

a natural hedge against changes to global prices and

fluctuations in the value of the rupee. A substantial fall

of the Rupee against the US Dollar however can have a

negative impact on the Group’s operations and finances.

Although the Group is able to increase its products’ selling

prices, these adjustments may require time depending on

the severity of the currency fall and existent government

price controls.

The Group also utilises effective treasury operation

strategies such as forward bookings, swaps etc. to negate

unfavorable effects of current fluctuations.

Credit Risk

Credit risk is the risk of financial losses arising due to the

unwillingness or inability of counter-parties to meet their

financial or contractual obligations in time and in full.

The Group encourages customers to purchase goods on

cash terms by providing discounts for cash payments. This

strategy has proved extremely successful.

In addition to this, thorough credit checks pertaining to

credit worthiness are performed on customers pertaining

to credit worthiness before granting sales on credit. The

Group’s Finance and Sales Divisions closely monitor credit

sales to ensure repayment on due dates and also tie future

sales based on outstanding value.




8

Risk Management Review Cont.


Human Capital & Labour Risk

Human capital risk is associated with losing talented

employees and environment of unpleasant labour relations .

The Group uses a series of strategies in motivating,

developing, and retaining its human capital.

The Group continuous provision of a comprehensive and

ongoing career development programme for its staff and

workers. The programme focuses on helping employees to

achieve their optimum potential and there by improve job

performance and satisfaction. CGE lays greater emphasis

on training and development of staffs with potential for

career development, providing them with the necessary

know-how and appropriate for personal development.

CGE strives to maintain healthy relationships with all

employees through regular dialogues and discussions.

The Group ensures compliance with all regulatory

requirements with regard to the benefits applicable to

employees.

Finally CGE provides attractive financial and performance

based incentives which are in line with or above the industry

standards.

Information Technology Risk

Technology risk is the risk associated with computer

security, hardware, software and other information

technology systems failing and causing disruption to

business operations of the Group.

A well thought-out and secure Information Technology

security infrastructure has been implemented organisation

wide. The security structure includes; recovery strategies,

data back-ups stored in off site locations, regular updating

of virus scanners and firewalls, maintenance of spare

servers and other critical ICT hardware components, andregular IT audits to ensure compliance relevant to security

structure.

Procurement Risk

Procurement risk relates to the availability of quality raw

materials, in the needed quantity, on the required date

and at the right price. Obtaining the right raw materials in

the desired manner is essential for the Group’s operation.

Any supply shortfall could adversely affect the ability of the

Group to fulfil the demands of customers, which will in turn

impact the bottom line.

The Group strives to address procurement risk by having

multiple sources from diverse geographic regions (both

locally and internationally) for all raw materials. CGE also

fosters the development of long term relationships with

its suppliers to gain influence and thereby enters into

contractual agreements.

Risk of Outbreaks of Disease

Outbreaks of communicable animal diseases can result

in significant losses to poultry flocks within a very short

period of time. In the past few years, the possibility of

Avian Influenza transmitting to human beings has caused

some concerns among the public about consuming poultry

products.

The management of the Group extends the services of staff

in providing training to the farmers and out growers with

regard to identifying and controlling disease outbreaks.

The staff also offer other services such as veterinarian

services in order to ensure the general health of animals.

These services have proved invaluable to both the farmer

and the Group in monitoring the development of the birds

and mitigating the risk of disease.

Regulatory and Compliance Risk

Regulatory risk is associated with changes in Government

policies, laws, regulations and statutes. Compliance risk

relates to a company being able to comply with all the

rules and laws applicable to a country. Both regulatory and

compliance risk factors can affect the business activities of

the Group.

The Group closely monitors changes to the regulatory

framework and ensures that CGE is always in compliance

with all requirements.

The Group works in a collaborative manner with trade

associations in the industry, the All Island Poultry

Association, and other trade chambers in advising andassisting regulatory bodies on developing and adjusting

regulations.




19

Risk Management Review Cont.


Competitive Risk

Competitive risk is the risk that customers will purchase

competitor or alternative products due to variances in the

product offering. The Group recognises the importance

of sustaining mutually beneficial relationships with its

customers, poultry farmers, dealers’ and out growers.

Providing customers with a high quality product, as and

when they require it, is the basis of customer satisfaction. In

the event of failing to do so, the Group runs a risk of losing

market share and thereby incurring financial losses.

The Group and its individual companies are in a continuous

dialogue with its customers to keep abreast of changing

trends, needs and purchasing behaviour of the market

place. By closely monitoring customers, CGE is in a position

to realign its product offering to match current customer

needs and wants.

CGE captures customer feedback on future needs, tracks

social and cultural trends that influence consumer demand

and focuses on building customer loyalty to ensure the

continuation of repeat purchasing trends. A number

of indicators such as product return data, customer

complaint indices, the number of interactions between

the Group and its customers, the churn rate amongst

the top twenty percent of customers and revenue growthfactors amongst targeted customer groups, are regularly

measured to gauge progress in managing these risks

effectively. Customer satisfaction in terms of products and

services is also monitored carefully, through initiatives to

establish customer satisfaction as the Group’s number

one priority and to use customer feedback as a catalyst for

improvement.

Key management personnel also work closely with the

farmers and the out growers to ensure birds of the highest

quality possible. This involves various activities including

sharing technical know-how, guiding them in setting up

farm infrastructure in accordance with the latest rearing

techniques.

In addition, CGE has put in place the industries’ best quality

standard process and ensures, via its quality assurance

systems, that a high level of quality is maintained in all

products and services marketed by the Group.




20

Report of the Directors on the State of Affairs of the Company

The Board of Directors is pleased to present their Report and

the Audited Financial Statements of the Company for the year

ended 31 December 2010. The details set out herein provide

pertinent information required by the Companies Act, No.7

of 2007, the Colombo Stock Exchange Listing rules and are

guided by recommended best accounting practices.

1. Principal Activities

The principal activities of the Company are

· manufacture and sale of poultry feed and other

animal feed

· manufacture and sale of aquatic feed

· import and sale of poultry equipment and vaccines

· operation of outgrower farms; and· poultry processing and distribution

2. Review of Performance for the year ended 31

December 2010 and Future Developments

A review of the Company’s performance during the

year, with comments on financial results for the year

ended 31 December 2010 and future developments

is contained in the Chairman’s and Chief Executive’s

Review (pages 2 to 4) and Management Discussion and

Analysis (pages 5 to 8). These reports, together with the

Financial Statements reflect the state of affairs of the

Company.

3. Financial Statements

The financial statements of the Company are given in

pages 25 to 59.

4. Independent Auditors’ Report

The Independent Auditors’ Report on the financial

statements is given on page 24.

5. Accounting Policies

The accounting policies adopted in preparation of

financial statements are given on pages 29 to 34. There

were no material changes in the Accounting Policies

adopted.

6. Interest Register

The Company maintains an Interest Register and the

particulars of those Directors who were directly or

indirectly interested in a contract of the Company are

stated there in.

7. Directors’ Interest

None of the Directors had a direct or indirect interest in

any contracts or proposed contracts with the Company

other than as disclosed in the Note 35 to the financial

statement.

8. Directors Remuneration and Other Benefits

Directors’ remuneration in respect of the Company for

the financial year ended 31 December 2010 is given in

Note 35 to the financial statements.

9. Corporate Donations

Donations made by the Company amounted to Rs.

35,000/- (2009 - Rs. 137,197/-). No donations were made

for political purposes.

10. Directorate

The names of the Directors who held office during the

year are given below.

Mr. Cheng Chih Kwong, - Chairman & Chief

Primus Executive Officer

Mr. Tan Beng Chuan - Executive Director &

Group General Manager

Mr. Cheng Chih Cheng, - Non Executive Director

Robert

Mr. Cheng Chih Hui, Peter - Non Executive Director

Dr. Wickrema Sena - Independent Non

Weerasooria Executive Director

Mr. Sunil Karunanayake - Independent Non

Executive Director

In accordance with the provisions of Article 87 of the

Articles of Association of the Company, Mr. Cheng Chih

Cheng, Robert retires by rotation and offers himself for

re-election.

A Resolution for the re-appointment of Dr. Wickrema

Sena Weerasooria, who was 70 years of age on 17th

July 2009 will be proposed at the Annual General

Meeting in terms of Section 211 of the Companies Act

No.7 of 2007. A Special notice has been given of this

intention.

11. Directors’ Shareholdings

As at As at

31/12/2010 31/12/2009

Mr. Cheng Chih Kwong, Primus 397 397

Mr. Tan Beng Chuan Nil Nil

Mr. Cheng Chih Cheng, Robert 397 397

Mr. Cheng Chih Hui, Peter 397 397

Dr. Wickrema Sena Weerasooria Nil Nil

Mr. Sunil Karunanayake Nil Nil

12. Auditors

The financial statements for the year ended 31

December 2010 have been audited by Messrs KPMG

Ford Rhodes Thornton & Co., Chartered Accountants,

who express their willingness to continue in office.

In accordance with the Companies Act No.07 of

2007, a resolution relating to their re-appointment

and authorising the Directors to determine their

remuneration will be proposed at the forthcoming

Annual General Meeting.




21

Report of the Directors on the State of Affairs of the Company Cont.

The Auditors Messrs KPMG Ford Rhodes Thornton &

Company were paid Rs. 1,950,000 (2009 - Rs.

1,800,000) as audit fees by the Company. No non audit

work was performed by them during the year.

As far as the Directors are aware, the Auditors do not

have any relationship (other than that of an Auditor) or

any interest in the Company.

13. Group Turnover

Group Turnover amounted to Rs. 8,009 Million (2009 -

Rs. 6,899 Million).

14. Dividends

The Directors propose for payment a First and Final

Dividend of Rs. 1.00 per share for the year ended 31st

December 2010.

15. Investments

Details of investments held by the Company are

disclosed in Note 16 & 17 to the Financial Statements.

16. Intangible Assets

An analysis of the intangible assets of the Company,

additions and impairments during the year and

amortisation charged during the year are set out in Note

15 to the financial statements.

17. Property, Plant and Equipment

An analysis of the property, plant and equipment of the

Company, additions and disposals made during the

year and depreciation charged during the year are set

out in Note 13 to the financial statements.

18. Capital Commitments

Capital expenditure contracted for as at 31 December

2010 for which no provision has been made in the

financial statements are set out in Note 30 to the

financial statements.

19. Stated CapitalThe issued and fully paid up stated capital of the

Company is Rs. 1,017,996,000/- divided into 60,000,000

ordinary shares. There was no change in the stated

capital of the Company during the year.

20. Reserves

Total reserves as at 31 December 2010 amounted to Rs.

572.8 million (2009 - Rs. 352.9 Million). The movement of

reserves is shown in the statement of changes in equity

on page 27.

21. Events subsequent to the Balance Sheet date

No significant events have occurred since the BalanceSheet date other than those disclosed in Note 36 to the

financial statement.

22. Employment Policies

The Company identifies Human Resources as one of

the most important factors bequeathing the survival

and growth of the Company in the current competitive

business environment. While appreciating and valuing

the service of our employees, a greater effort is being

made to hire the best talent from external sources, to

bolster weak areas and continue to maintain the highest

standards prevalent in the industry. Human Resource

Head Count is considered as a key indicator and

recruitment is based on annual manpower planning.

The Company provides equal opportunities. Greater

emphasis is given to the areas of training, professional

development and ethical business practices. All

rewards and career opportunities are based on merit

and on performance.

23. Taation

The tax position of the Company is given in Note 11 to

the financial statements.

24. Share Information

Information relating to earnings, dividend, net assets

and market price per share is given on page 60

and Information on share trading is given on page 60.

25. Disclosure as per CSE Rule No.8.7 (i) (5)

2010 2009Rs. Cts. Rs. Cts.

Market price per share as at

31 December 74.70 14.25

Highest/lowest share price 75.50/12.75 16.00/6.75

Earnings per share 3.66 2.35

Dividend per share -. -

Net assets per share 26.51 22.85

26. Shareholding

The number of registered shareholders of the Company

as at 31 December 2010 was 3,714. The distribution

and analysis of shareholdings are given on page 62.

27. Major Shareholders

The twenty largest shareholders of the Company as at

31 December 2010, together with an analysis are given

on page 62.

28. Statutory Payments

The Directors to the best of their knowledge and belief

are satisfied that all statutory payments in relation to the

Government and the employees have been made on

time.

29. Environment, Health and Safety

Company policy continues to ensure that allEnvironmental, Health and Safety regulations are

strictly adhered to, minimizing any adverse effects




22

Report of the Directors on the State of Affairs of the Company Cont.

to the environment. Recycling of waste is carried out

where ever possible. Employees are provided with

all personal protective equipment as Health and well

being which are our prime concerns. Fire fighting and

safety systems are in place to safeguard the Company

interest. Plans are in progress to introduce emission

free machinery for in-house operations to eliminate air

pollution.

30. Corporate Governance / Internal Control

The Corporate Governance and Internal Control

Policies of the Company are given on pages 11 to 13.

31. Contingent Liabilities

Contingent Liabilities as at 31 December 2010 are set

out in Note 29 to the financial statements.

32. Annual General Meeting

The 28th Annual General Meeting of the Company

will be held at ICASL Auditorium, 30 A, Malalasekera

Mawatha, Colombo-07 on Thursday 21 April 2011 at

10.00 a.m.

By Order of the Board of


(Sgd.) (Sgd.)

Cheng Chih Kwong, Primus Tan Beng Chuan

Chairman & Executive Director &

Chief Executive Officer Group General Manager

(Sgd.)

S S P Corporate Services (Private) Limited

Secretaries

Colombo

21 March 2011




23

Statement of the Directors’ Responsibility

The responsibility of the Directors in

relation to the financial statements of

the Company and the Group, is set

out in the following statement. The

responsibility of the auditors, in relation

to the financial statements, is set out in

their report appearing on page 24.

The Companies Act No. 07 of 2007

requires the Directors to prepare

financial statements for each financial

year which give a true and fair view of

the status of affairs of the Company and

the Group and of the profit or loss forthat year.

In preparing these financial statements

the Directors are required to:

* Select suitable accounting policies

and then apply them consistently;

* Make judgments and estimates that

are reasonable and prudent;

* State whatever applicableaccounting standards have been

followed, subject to any material

departures and explained in the

financial statements; and

* Prepare the financial statements on

a going concern basis unless it is

inappropriate to presume that the

Group will continue in business.

The Directors are responsible for

keeping proper accounting records

which disclose with reasonable

accuracy at any time the financial

position of the Company and the Group

and to ensure that the financial

statements comply with the Companies

Act.

The Directors are also responsible

for taking such steps as they deem

reasonable or required in order to

safeguard the assets of the Company

and the Group and in this regardto give proper consideration to

the establishment of appropriate

internal control systems with a view

to prevent and detect fraud and other

irregularities.

The Directors are required to prepare

the financial statements to provide

the auditors with every opportunity to

take whatever steps and undertake

whatever inspections they may

consider to be appropriate to enablethem to express their audit opinion.

Compliance Statement

The Directors are of the view that they

have discharged their responsibilities

as set out in this statement. They also

confirm that to the best of their

knowledge, all statutory payments

payable by the Company and its

subsidiaries as at the Balance Sheet

date have been paid or where relevant,

provided for.


(Sgd.)

Cheng Chih Kwong, Primus

Chairman &

Chief Executive Officer

(Sgd.)

Tan Beng Chuan

Executive Director &

Group General Manager

Colombo

21 March 2011




24

Independent Auditors’ Report

TO THE SHAREHOLDERS OF CEYLON GRAIN ELEVATORS PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Ceylon

Grain Elevators PLC (the “Company”), and the consolidated

financial statements of the Company and its subsidiaries (the

“Group”) as at December 31, 2010 which comprise the balance

sheet as at December 31, 2010, and the income statement,

statement of changes in equity and cash flow statement for the year

then ended, and a summary of significant accounting policies and

other explanatory notes as set out on pages 25 to 59 of this Annual

Report.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair

presentation of these financial statements in accordance withSri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal control relevant

to the preparation and fair presentation of financial statements

that are free from material misstatement, whether due to fraud or

error; selecting and applying appropriate accounting policies;

and making accounting estimates that are reasonable in the

circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in

accordance with Sri Lanka Auditing Standards. Those standards

require that we plan and perform the audit to obtain reasonable

assurance whether the financial statements are free from materialmisstatement.

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting policies used and

significant estimates made by management, as well as evaluating

the overall financial statement presentation.

We have obtained all the information and explanations which

to the best of our knowledge and belief were necessary for the

purposes of our audit. We therefore believe that our audit provides

a reasonable basis for our opinion.

Opinion

Company

In our opinion, so far as appears from our examination, the

Company maintained proper accounting records for the year

ended December 31, 2010 and the financial statements give a

true and fair view of the Company’s state of affairs as at December

31, 2010 and its profit and cash flows for the year then ended in

accordance with Sri Lanka Accounting Standards.

Group

In our opinion, the consolidated financial statements give a true and

fair view of the state of affairs as at December 31, 2010, the profit

and cash flows for the year then ended, in accordance with SriLanka Accounting Standards, of the Company and its subsidiaries

dealt with thereby, so far as concerns the members of the Company.

Emphasis of Matter

Without qualifying our opinion, we draw attention to.

The disclosures made in Note 29(a) to the financial statements

which states the position regarding the charge made against the

Company by the Director General of Custom. The outcome of this

matter can not presently be determined.

Report on Other Legal and Regulatory Requirements

These financial statements also comply with the requirements ofSections 153(2) to 153(7) of the Companies Act No. 07 of 2007.

KPMG Ford, Rhodes, Thornton & Co.

Chartered Accountants

Colombo

21 March 2011




25

All amounts in Sri Lanka Rupees thousands

Notes Consolidated Company

For the year ended 31 December, 2010 2009 2010 2009

Revenue 4 8,009,409 6,899,316 7,807,161 6,947,738

Cost of sales (7,161,178) (6,552,583) (7,203,396) (6,490,098)

Gross profit 848,231 346,733 603,765 457,640

Other operating profit / (loss) 8 38,752 (37,687) - -

Other income 9 14,810 40,869 19,303 34,788

Selling & distribution expenses (121,369) (69,338) (117,423) (67,448)

Administrative expenses (188,346) (128,147) (245,432) (175,410)

Operating profit 5 592,078 152,430 260,213 249,570

Net finance expenses 10 (29,063) (120,735) (29,081) (119,964)

Share of profit of associate 16 (c) 42,409 24,042 - -

Profit before ta 605,424 55,737 231,132 129,606

Income tax expenses 11 (32,525) (3,965) (11,290) 11,381

Profit for the year 572,899 51,772 219,842 140,987

Attributable to:

Equity holders of the parent 474,872 133,870 219,842 140,987

Minority interest 32 98,027 (82,098) - -

Profit for the year 572,899 51,772 219,842 140,987

Basic earnings per share (Rs) 12 7.91 2.23 3.66 2.35

The notes on pages 29 to 59 are an integral part of these consolidated financial statements.

Income Statement




26



As at 31 December, 2010 2009 2010 2009

ASSETS

Non-current assets

Property, plant and equipment 13 1,781,450 1,860,963 202,521 290,879

Leasehold right over land & buildings 14 520,885 542,522 120,615 124,371

Intangible assets 15 87,912 850 87,912 -

Investment in associate companies 16 230,064 187,655 128,484 128,484

Investment in subsidiary companies 17 - - 361,625 361,625

Livestock 18 355,087 224,287 - -

Amount due from affiliated companies 20 - - 1,339,622 1,647,068

Total non-current assets 2,975,398 2,816,277 2,240,779 2,552,427

Current assets

Inventories 21 1,206,253 1,507,100 1,112,117 1,370,660

Trade and other receivables 22 452,327 460,649 400,267 389,988

Current tax receivable 34,322 35,212 1,906 1,444

Cash and cash equivalents 23 47,462 34,173 30,229 22,147

Total current assets 1,740,364 2,037,134 1,544,519 1,784,239

Total assets 4,715,762 4,853,411 3,785,298 4,336,666

EQUITY

Stated capital 31 1,017,996 1,017,996 1,017,996 1,017,996

Share premium of subsidiaries 213,133 213,133 - -

Revaluation reserve 33 231,142 231,142 37,579 37,579

Retained earnings 654,811 179,939 535,255 315,413

Total equity attributable to equity holders of the parent 2,117,082 1,642,210 1,590,830 1,370,988

Minority interest 32 178,062 80,035 - -

Total Equity 2,295,144 1,722,245 1,590,830 1,370,988

LIABILITIES

Non-current liabilities

Deferred tax liabilities 27 78,350 71,146 20 20

Employee benefits 28 28,052 23,946 19,654 16,676

Amount due to affiliated companies 25 1,065,944 1,081,576 1,065,944 1,081,576

Total non-current liabilities 1,172,346 1,176,668 1,085,618 1,098,272

Current liabilities

Trade and other payables 24 394,343 211,425 267,792 134,239

Amount due to affiliated companies 25 407,454 986,239 405,876 985,083

Interest bearing borrowings 26 446,475 756,834 435,182 748,084

Total current liabilities 1,248,272 1,954,498 1,108,850 1,867,406Total liabilities 2,420,618 3,131,166 2,194,468 2,965,678

Total equity and liabilities 4,715,762 4,853,411 3,785,298 4,336,666

The notes on pages 29 to 59 are an integral part of these consolidated financial statements.These financial statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

(Sgd.) K. A. R. S. Perera

Financial Controller

These financial statements were approved by the Board of Directors on 21 March 2011.

(Sgd.) Cheng Chih Kwong, Primus (Sgd.) Tan Beng Chuan

Chairman & Chief Executive Officer Executive Director & Group General Manager

Balance Sheet




27

Statement of Changes in Equity

CONSOLIDATED

For the year ended 31 December, Stated Share Revaluation Retained Minority Total

capital premium of reserve earnings interest equity

subsidiaries

Balance as at 1 January 2009 1,017,996 213,133 61,237 44,899 46,958 1,384,223

Revaluation surplus - - 171,075 - 115,175 286,250

Depreciation transfer - - (1,170) 1,170 - -

Profit for the year - - - 133,870 (82,098) 51,772

Balance as at 31 December 2009 1,017,996 213,133 231,142 179,939 80,035 1,722,245

Profit for the year - - - 474,872 98,027 572,899

Balance as at 31 December 2010 1,017,996 213,133 231,142 654,811 178,062 2,295,144

COMPANY

For the year ended 31 December, Stated Revaluation Retained Total

capital reserve earnings equity

Balance as at 1 January 2009 1,017,996 38,639 173,256 1,229,891

Revaluation surplus - 110 - 110

Depreciation transfer - (1,170) 1,170 -

Profit for the year - - 140,987 140,987

Balance as at 31 December 2009 1,017,996 37,579 315,413 1,370,988

Profit for the year - - 219,842 219,842

Balance as at 31 December 2010 1,017,996 37,579 535,255 1,590,830






28

Cash Flow Statement



For the year ended 31 December, 2010 2009 2010 2009

Operating activities

Cash generated from operations 34 948,867 500,217 386,721 192,230

Exchange gain/ (loss) 22,943 (26,886) 21,969 (26,463)

Interest received 10 1,511 840 1,132 648

Dividend received 9 - 1,168 - 1,168

Interest paid 10 (53,517) (94,689) (52,182) (94,149)

Employee benefits paid 28 (1,723) (2,023) (1,040) (1,456)

Tax paid - (528) - -

Net cash generated from operating activities 918,081 378,099 356,600 71,978

Investing activities

Purchase of property, plant and equipment (147,434) (50,475) (35,616) (30,996)

Proceeds from disposal of PPE - 512 - 179

Purchase of livestock 18 (446,999) (287,680) - -

Disposal of other investment - 24,695 - 24,695

Net cash used in investing activities (594,433) (312,948) (35,616) (6,122)

Financing activities

Net borrowings (334,900) 33,900 (334,900) 33,900

Net cash (used in) / generated from financing activities (334,900) 33,900 (334,900) 33,900

(Decrease) / increase in cash and cash equivalents (11,252) 99,051 (13,916) 99,756

Movements in cash and cash equivalents

At the start of the year (27,761) (126,812) (31,037) (130,793)

(Decrease) / increase in cash and cash equivalents (11,252) 99,051 (13,916) 99,756

Cash and cash equivalents as at 31 December 23 (a) (39,013) (27,761) (44,953) (31,037)





29

Notes to the Financial Statements

1. REPORTING ENTITY

1.1 General

Ceylon Grain Elevators PLC (the "Company") is a "Quoted

Public Company" with limited liability, incorporated and

domiciled in Sri Lanka. The address of the Company's

registered office is No.15, Rock House Lane, Colombo - 15, Sri

Lanka. The consolidated financial statements of the Company

as at and for the year ended 31 December 2010 comprise

the Company and its subsidiaries and the Group's interest in

associates, listed below.

Subsidiaries

" Three Acre Farms PLC

" Ceylon Pioneer Poultry Breeders Limited

" Ceylon Livestock and Agrobusiness Services (Private) Limited

" Ceylon Warehouse Complex (Private) Limited" Ceylon Aquatech (Private) Limited

" Millennium Multibreeder Farms (Private) Limited

Associates

" Ceylon Agro Industries Limited

" Prima Management Services (Private) Limited

Ceylon Grain Elevators PLC (CGE) was incorporated in

1982, when the government of Sri Lanka & Prima Limited of

Singapore signed an agreement. The company was listed in

the Colombo Stock Exchange on 27th January 1992 in the

Food & Beverage Sector. Prima Limited, Singapore, holds

45.45% of the issued share capital of the Company.

1.2 Principal activities and nature of the operationThe main business of the Group is feed milling, broiler farming,

poultry processing and distribution, poultry breeder farming

operations, manufacture and sale of aquatic feed, buying

and selling of poultry equipment and provision of silo and

warehouse facilities and transshipment.

1.3 Number of employees

The average numbers of employees of the group and company

for the year are as follows.

Group

Full time 451 (2009 - 453)

Part time 805 (2009 - 957)

Company

Full time 254 (2009 - 268)Part time 141 (2009 - 258)

2. BASIS OF PREPARATION

2.1 Statement of compliance

The consolidated financial statements have been prepared in

accordance with Sri Lanka Accounting Standards (SLAS) as

issued by the Institute of Chartered Accountants of Sri Lanka

(ICASL) and the requirements of the Companies Act No.7 of

2007. The consolidated financial statements were authorized

for issue by the Board of Directors on 21 March 2011.

2.2 Basis of measurement

The consolidated financial statements have been prepared

on the historical cost concept, except for the revaluation of

property as stated in note 3.3 and measurement of investmentproperty at revalued amounts (fair value method) as stated in

note 3.6.

2.3 Functional and presentation currencyThe consolidated financial statements are presented in Sri

Lanka Rupees, which is the Company's functional currency,

rounded to the nearest thousand, unless otherwise stated.

2.4 Use of estimates and judgments

The preparation of financial statements in conformity with Sri

Lanka Accounting Standards (SLAS) requires management to

make judgments, estimates and assumptions that affect the

application of accounting policies and the reported amounts

of assets, liabilities, income and expenses. Actual results may

differ from these estimates.

Estimates and underlying assumptions are reviewed on

an ongoing basis. Revisions to accounting estimates are

recognized in the period in which the estimates are revised

and in any future periods affected.

Information about critical judgements in applying accounting

policies that have the most significant effect on the amounts

recognized in the financial statements is included in the

following notes:

· Note 3.6 - classification of investment property

· Note 3.4 - lease classification.

· Note 3.12 - key assumptions used in discounted cash flow

projections

· Note 3.19 - utilization of tax losses

· Note 3.13 - measurement of defined benefit obligations

· Note 3.24 - provisions and contingencies.2.5 Materiality and Aggregation

Each material class of similar items is presented separately in

the financial statements. Items of a dissimilar nature or function

are presented separately unless they are immaterial.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied

consistently to all periods presented in these consolidated

financial statements, and have been applied consistently

by Group entities. Certain comparative amounts have been

reclassified to conform with the current year's presentation.

3.1 Basis of consolidation

SubsidiariesSubsidiary undertakings, which are those companies in which

the Group, directly or indirectly, has an interest of more than

one half of the voting rights or otherwise has power to exercise

control over the operations, have been consolidated. In

assessing control, potential voting rights account. Subsidiaries

are consolidated from the date on which effective control is

transferred to the Group and are no longer consolidated from

the date of control ceases. Accounting policies of subsidiaries

have been changed when necessary to align them with the

policies adopted by the Group.

Minority Interest

The total profit and loss for the year of the Company and

its subsidiaries included in consolidation are shown in the

consolidated income statement with the proportion of profitand loss after taxation pertaining to minority shareholders of

subsidiaries being deducted as "minority interest". All assets

and liabilities of the Company and of its subsidiaries included




30

Notes to the Financial Statements Cont.

in consolidation are shown in the consolidated balance sheet.

The interest of minority shareholders of subsidiaries in the fair

value of net assets of the Group are indicated separately in

the consolidated balance sheet under the heading "minority

interest".

Associates

Associates are entities in which the Group has significant

influence, but not control, over their financial and operating

policies. Significant influence is presumed to exist when the

Group holds between 20 and 50 percent of the voting power of

another entity. The consolidated financial statements include

the Group's share of the gains and losses of associates on

an equity accounted basis, after adjustments to align their

accounting policies with those of the Group, from the date that

significant influence commences until the date that significant

influence ceases. When the Group's share of losses exceeds

its interest in an associate, the Group carrying amount is

reduced to nil and recognition of further losses is discontinued

except to the extent that the Group has incurred legal or

constructive obligations or made payments on behalf of an

associate.

Transactions eliminated on consolidation

Intra-group balances, and any unrealized gains and losses or

income and expenses arising from intra-group transactions, are

eliminated in preparing the consolidated financial statements.

Unrealized gains arising from transactions with equity

accounted investees are eliminated against the investment to

the extent of the Group's interest in the investee. Unrealized

losses are eliminated in the same way as unrealized gains, but

only to the extent that there is no evidence of impairment.

Accounting for Investment in subsidiaries and associates

When separate financial statements are prepared, investments

in subsidiaries and associates are accounted for using the cost

method. Investments in subsidiaries and associates are stated

in the Company's balance sheet at cost less accumulated

impairment losses.

3.2 Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the Sri

Lankan Rupees at the foreign exchange rate prevailing at

the date of the transactions. Monetary assets and liabilities

denominated in foreign currencies at the balance sheet dateare retranslated to the Sri Lankan Rupees at the exchange

rates on that date Foreign exchange differences arising on

retranslation are recognized in the income statement.

3.3 Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost

less accumulated depreciation and accumulated impairment

losses.

Cost includes expenditure that is directly attributable to the

acquisition of the asset. The cost of self-constructed assets

includes the cost of materials and direct labour, any other

costs directly attributable to bringing the asset to a working

condition for its intended use, and the cost of dismantlingand removing the items and restoring the site on which

they are located. Purchased software that is integral to the

functionality of the related equipment is capitalized as part of

that equipment.

When parts of an item of property, plant and equipment have

different useful lives, they are accounted for as separate items

(major components) of property, plant and equipment.

Gains and losses on disposal

Gains and losses on disposal of an item of property, plant

and equipment are determined by comparing the proceeds

from disposal with the carrying amount of property, plant and

equipment, and are recognised net within "other income/other

expenses" in profit or loss. When revalued assets are sold,

the amounts included in the revaluation surplus reserve are

transferred to retained earnings.

Reclassification to investment property

When the use of a property changes from owner-occupied toinvestment property, the property is remeasured to fair value

and reclassified as investment property. Any gain arising on

remeasurement is recognised in profit or loss to the extent

that it reverses a previous impairment loss on the specific

property, with any remaining gain recognised in the statement

of changes in equity and presented in the revaluation reserve

in equity. Any loss is recognized in the statement of changes

in equity and presented in the revaluation reserve in equity to

the extent that an amount had previously been included in the

revaluation reserve relating to the specific property, with any

remaining loss recognised immediately in profit or loss.

Revaluation

Revaluations are carried out by independent professional

valuers regularly such that the carrying amount of these assetsdoes not differ materially from that which would be determined

using fair values at the balance sheet date.

The Group revalues Land & Buildings at least once in every 4

years which is stated at its fair value at the date of revaluation

less any subsequent impairment losses. On revaluation, any

increase in the revaluation amount is credited to the revaluation

reserve unless it offsets a previous decrease in value of the

same asset that was recognised in the income statement.

A decrease in value is recognized in the income statement

where it exceeds the increase previously recognized in the

revaluation reserve. Upon disposal, any related revaluation

reserve is transferred from the revaluation reserve to retained

earnings and is not taken into account in arriving at the gain

or loss on disposal. The details of revaluation are disclosed in

Note 13 to the financial statements.

Company has been discontinued transfer of revaluation

reserved based on usage.

Subsequent costs

The cost of replacing a part of an item of property, plant and

equipment is recognised in the carrying amount of the item

if it is probable that the future economic benefits embodied

within the part will flow to the Group, and its cost can be

measured reliably. The carrying amount of the replaced part

is derecognised. The costs of the day-to-day servicing of

property, plant and equipment are recognised in profit or loss

as incurred.

Derecognition

The carrying amount of an item of Property, Plant & Equipment

is derecognized on disposal or when no future economic

benefits are expected from its use or disposal. The gain or




31


loss arising from the derecognition of an item of Property,

Plant & Equipment is included in profit or loss when the item

is derecognized. When replacement costs are recognized

in the carrying amount of an item of Property, Plant and

Equipment, the remaining carrying amount of the replaced

part is derecognized. Major inspection costs are capitalized.

At each such capitalization, the remaining carrying amount of

the previous cost of inspections is derecognized.

Depreciation

Depreciation is based on the cost or revaluation of an asset

or other amount substituted for cost, less its residual value.

Significant components of individual assets are assessed

and if a component has a useful life that is different from

the remainder of that asset, that component is depreciated

separately.

Depreciation is recognised in income statement on a straight-

line basis over the estimated useful lives of each part of an

item of property, plant and equipment. Leased assets are

depreciated over the shorter of the lease term and their useful

lives unless it is reasonably certain that the Group will obtain

ownership by the end of the lease term. No depreciation is

provided on assets under construction.

The estimated useful lives for the current and comparative

years are as follows:

Freehold building 50 years

Plant and machinery 16 2/3 years

Electrical and factory equipment 2 - 5 - 10 - 20 years

Farm equipment 5 - 20 years

Furniture and fittings and office equipment 10 yearsMotor vehicles 5 years

Land is not depreciated as it is deemed to have an indefinite

life.

Depreciation of an asset begins when it is available for use

and ceases at the earlier of the date that the asset is classified

as held for sale and the date that the asset is derecognized.

Depreciation methods, useful lives and residual values are

reviewed at each reporting date and adjusted if appropriate.

Where the carrying amount of an asset is greater than its

estimated recoverable amount, it is written down immediately

to its recoverable amount.

Capital work in progress

Capital expenses incurred during the year which are notcompleted as at the Balance Sheet date are shown as capital

work-in-progress, while the capital assets which have been

completed during the year and put to use are transferred to

property, plant and equipment.

3.4 Leased assets

Leases in terms of which the Group assumes substantially all

the risks and rewards of ownership are classified as finance

leases. Upon initial recognition the leased asset is measured

at an amount equal to the lower of its fair value and the present

value of the minimum lease payments. Subsequent to initial

recognition, the asset is accounted for in accordance with the

accounting policy applicable to that asset.

Other leases are operating leases and any prepayments arerecognised in the Group's balance sheet as lease hold rights.

The lease hold rights under operating leases are charged to

the income statement on a straight- line basis over the period

of the lease. When an operating lease is terminated before the

lease period has expired, any payment required to be made

to the lessor by way of penalty is recognised as an expense in

the period in which termination takes place.

The cost of improvements to or on leased property is

capitalized, and depreciated over the unexpired period of the

lease or the estimated useful lives of improvements, whichever

is shorter.

3.5 Intangible assets

Goodwill

Goodwill and negative goodwill arise on the acquisition of

subsidiaries. Goodwill represents the excess of the cost of

the acquisition over the Group's interest in the net fair value

of the identifiable assets, liabilities and contingent liabilities of

the acquiree. When the excess is negative (negative goodwill),

it is recognized immediately in the consolidated income

statement.

Goodwill is stated at cost less accumulated impairment losses.

Goodwill is allocated to cash generating units and is no longer

amortised but annually tested for impairment. In respect of

associates, the carrying amount of goodwill is included in the

carrying amount of the investment in the associates. Goodwill

on the acquisition of subsidiaries is presented as intangible

assets.

Goodwill is tested for impairment as described in accounting

policy (3.12).

Other intangible assets

Other intangible assets that are acquired by the Group and

have finite useful lives are measured at cost less accumulated

amortisation and accumulated impairment losses.

Subsequent ependiture

Subsequent expenditure is capitalised only when it increases

the future economic benefits embodied in the specific asset to

which it relates. All other expenditure, including expenditure

on internally generated goodwill and brands, is recognised in

profit or loss as incurred.

Amortisation

Amortisation is based on the cost of an asset less its residual

value.

Amortisation is recognised in profit or loss on a straight-linebasis over the estimated useful lives of intangible assets, other

than goodwill, from the date that they are available for use. The

estimated useful lives for the current and comparative years

are as follows:

· Computer software 10 years

Amortisation methods, useful lives and residual values are

reviewed at each reporting date and adjusted if appropriate.

3.6 Investment Property

Investment properties are those which are held either to

earn rental income or for capital appreciation or for both.

Investment properties are stated at fair value. An external,

independent valuation Company, having an appropriate

recognized professional qualification and recent experiencein the location and category of property being valued, values

the portfolio every 3 years. The fair values are based on market

values, being the estimated amount for which a property could




32


be exchanged on the date of valuation between a willing buyer

and a willing seller in an arm's length transaction after proper

marketing wherein the parties had each acted knowledgeably,

prudently and without compulsion.

Valuations reflect, where appropriate; the type of tenants

actually in occupation or responsible for meeting lease

commitments or likely to be in occupation after letting of

vacant accommodation and the market's general perception

of their credit-worthiness; the allocation of maintenance and

insurance responsibilities between lessor and lessee; and the

remaining economic life of the property. It has been assumed

that whenever rent reviews or lease renewals are pending

with anticipated reversionary increases, all notices and where

appropriate counter notices have been served validly and

within the appropriate time.

Any gain or loss arising from a change in fair value is

recognized in profit or loss. Rental income from investment

property is accounted for as described in accounting policy.

When an item of property, plant and equipment is transferred

to investment property following a change in its use, any

differences arising at the date of t ransfer between the carrying

amount of the item immediately prior to transfer and its fair

value is recognized directly in equity if it is a gain. Upon

disposal of the item the gain is transferred to retained earnings.

Any loss arising in this manner is recognized in profit or loss

immediately.

If an investment property becomes owner-occupied, it is

reclassified as property, plant and equipment and its fair value

at the date of reclassification becomes its deemed cost for

subsequent accounting.

3.7 Investments

Short Term Investments

Other investments include investments in marketable securities

which are listed on the Colombo Stock Exchange. These

investments are valued at cost or market price whichever is

lower. Any diminution in value is provided for in the financial

statements.

On disposal of an investment, the difference between the net

disposal proceeds and the carrying amount is charged or

credited to the income statement.

3.8 Livestock

Livestock represents the unamortized parent and grandparent

livestock, used to breed day old commercial chicks. Parent

and grandparent birds include the growing birds and the

laying birds.

The growing birds are valued at directly attributable cost

incurred up to the commencement of laying period. The laying

birds are valued at cost less subsequent amortizations. The

amortization is made on straight line basis over the laying

period after making due allowances for carcass value.

Livestock is not valued at its fair value as the fair value cannot

be measured reliably due to non existence of active markets

for parent and grandparent birds at different age categories

and the complexity in determining expected future cash flows

for parent and grandparent birds in different age, breed and

genetic merit.

3.9 Inventories

Inventories are measured at the lower of cost and net realizable

value after making due allowances for obsolete & slow moving

items.

Net realizable value is the estimated selling price in the ordinary

course of business, less the estimated costs necessary to

make the sale.

The cost incurred in bringing inventories to its present location

and conditions are accounted as follows.

Compounded feed

Cost is calculated using the weighted average cost formula

and the cost of finished goods and work in progress comprises

raw materials, direct labour, other direct costs and related

production overheads, but excludes interest expenses.

Processed Chicken

Processed Chicken inventory is valued at direct cost togetherwith a directly attributable proportion of overheads.

Eggs

Hatching eggs are valued at direct cost together with an

appropriate proportion of production overheads.

Live Stock held for sale (Parent birds)

The value of livestock held for sale is based on the market

price of livestock of similar age, breed and genetic merit.

Poultry equipment, drugs, vaccine and sundry inventories

Poultry equipment, drugs, vaccine and sundry inventories are

valued at actual cost on weighted average basis after making

due allowance for obsolete and slow moving items.

Out grower stock

Out grower stock represents the company's birds reared at

outside farms and is valued at directly attributable cost.

3.10 Trade and other receivables

Trade receivables are carried at anticipated realizable value.

An estimate is made for doubtful receivables based on a

review of all outstanding amounts at the year end. Bad debts

are written off during the year in which they are identified.

3.11 Cash & cash equivalents

Cash & cash equivalents comprise cash in hand, deposits

held at call with banks, and investments in money market

instruments.

For the purposes of the cash flow statement, cash and cash

equivalents comprise cash in hand, deposits held at call with

banks, and investments in money market instruments, net of

bank overdrafts. In the balance sheet, bank overdrafts are

included in borrowings in current liabilities.

Cash Flow Statement is prepared under the "direct" method as

per Sri Lanka Accounting Standard 09 - Cash Flow Statements.

3.12 Impairment of assets

The carrying amounts of the Group's assets are reviewed at

each balance sheet date to determine whether there is any

indication of impairment. If any such indication exists, the

assets' recoverable amounts are estimated. For goodwill,

recoverable amount is estimated at each balance sheet date

and impairment loss is recognized whenever the carrying

amount of an asset or its cash generating unit exceeds itsrecoverable amount.

An impairment loss is recognized if the carrying amount of

an asset or its cash-generating unit exceeds its recoverable




33


amount. A cash-generating unit is the smallest identifiable

asset group that generates cash flows that largely are

independent from other assets and groups. Impairment losses

are recognized in the income statement. Impairment losses

recognized in respect of cash-generating units are allocated

first to reduce the carrying amount of any goodwill allocated to

the units and then to reduce the carrying amount of the other

assets in the unit (group of units) on a pro rata basis.

Calculation of recoverable amount

The recoverable amount of an asset or cash-generating unit

is the greater of its value in use and its fair value less costs to

sell. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value

of money and the risks specific to the asset or cash-generatingunit.

Reversal of impairment

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, impairment losses recognized in

prior periods are assessed at each balance sheet date for any

indications that the loss has decreased or no longer exists. An

impairment loss is reversed if there has been a change in the

estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the

asset's carrying amount does not exceed the carrying amount

that would have been determined, net of depreciation or

amortization, if no impairment loss had been recognized.

Reversals of impairment losses are recognized in the income

statement.

3.13 Employee benefits

Defined benefit plan - gratuity

A defined benefit plan is a post employment benefit plan other

than a defined contribution plan. The liability recognised in the

balance sheet in respect of defined benefit plan is the present

value of defined benefit obligation at the balance sheet date.

Benefits falling due more than 12 months after the balance

sheet date are discounted to present value. The defined

benefit obligation is calculated by independent actuaries

using Projected Unit Credit (PUC) method as recommended

by SLAS 16 - "Employees benefits". The present value of the

defined benefit obligation is determined by discounting the

estimated future cash outflows. The gratuity liability is based

on the actuarial valuation carried out once in 3 years.

The actuarial gains and losses are charged or credited to

income statement in the period in which they arise.

The assumptions based on which the results of the actuarial

valuation was determined, are included in Note 28 to the


However, according to the Payment of Gratuity Act No.12

of 1983, the liability for the gratuity payment to an employee

arises only on the completion of 5 years of continued service

with the Company.

Defined contribution plan

A defined contribution plan is a post employment plan under

which an entity pays fixed contributions into a separate entity

and will have no legal or constructive obligation to pay a further

amount. Obligations for contributions to defined contribution

plans are recognized as expense in income statement as and

when they are due.

The Group contributes 12% and 3% of gross emoluments

of employees as provident fund and trust fund contribution

respectively.

3.14 Stated capital

Ordinary shares and share premium are classified as stated

capital.

3.15 Interest bearing borrowings

Borrowings are recognized initially at the proceeds received.

3.16 Provisions

A provision is recognised if, as a result of a past event, theGroup has a present legal or constructive obligation that can

be estimated reliably, and it is probable that an outflow of

economic benefits will be required to settle the obligation.

3.17 Revenue recognition

Sale of goods

Revenue from the sale of goods in the course of ordinary

activities is measured at the fair value of the consideration

received or receivable, net of returns, trade discounts and

volume rebates. Revenue is recognised when persuasive

evidence exists, usually in the form of an executed sales

agreement, that the significant risks and rewards of

ownership have been transferred to the customer, recovery

of the consideration is probable, the associated costs andpossible return of goods can be estimated reliably, there is

no continuing management involvement with the goods,

and the amount of revenue can be measured reliably. If it is

probable that discounts will be granted and the amount can

be measured reliably, then the discount is recognised as a

reduction of revenue as the sales are recognised. Revenue

excludes value added taxes or other sales taxes.

Rental income

Rental income received or receivable in the course of ordinary

activities is recognized as revenue in the income statement

on a straight-line basis over the term of the lease. Lease

incentives granted are recognized as an integral part of the

total rental income.Rental income from investment property is recognised as

other income in profit or loss on a straight-line basis over the

term of the lease.

Interest income

Interest income from time deposits and other interest-bearing

assets is accrued on a time-apportioned basis on the principal

outstanding and at the rate applicable unless collectability is

in doubt.

Dividend income

Dividend income is recognised in the income statement when

the right to receive payment is established.

Other income / Other operating profits/losses

Gains/losses on the disposal of investments held by the Group

have been accounted for as other income in the income

statement.




34


Gains/losses on the disposal of property, plant & equipment

determined by reference to the carrying amount and related

expenses, have been accounted for as other income in the

income statement.

Other operating profits/losses consist of profits/losses arising

from out grower operations carried out by the companies that

use farms for out grower operations.

3.18 Epenses

Operating lease payments

Where the Company has the use of assets under operating

leases, payments made under the leases are recognised in

the income statement on a straight line basis over the term

of the lease. Lease incentives received are recognised in the

income statement as an integral part of the total lease expense

over the term of the lease. Contingent rentals are charged to

the income statement in the accounting period in which they

are incurred.

Net finance epenses

Net financing costs comprise interest payable on borrowings

calculated using the effective interest rate method, interest

receivable on funds invested and foreign exchange gains and

losses that are recognised in the income statement.

3.19 Income ta epenses

Income tax expense comprises current and deferred tax.

Income tax is recognized in the income statement except to

the extent that it relates to items recognized directly in equity,

in which case it is recognized in equity.Current ta

Current tax is the expected tax payable on the taxable income

for the year, using tax rates enacted at the balance sheet

date, and any adjustment to tax payable in respect of previous

years.

Deferred ta

Deferred tax is recognized using the balance sheet liability

method, providing for temporary differences between the

carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for taxation purposes. The

following temporary differences are not provided for: goodwill

not deductible for tax purposes, the initial recognition of assets

or liabilities that affect neither accounting nor taxable profit,and differences relating to investments in subsidiaries to the

extent that they will probably not reverse in the foreseeable

future. The amount of deferred tax provided is based on the

expected manner of realization or settlement of the carrying

amount of assets and liabilities, using tax rates enacted or

substantively enacted at the balance sheet date.

The principal temporary differences arise from depreciation

on property, plant and equipment, tax losses carried forward

and provisions for defined benefit obligations. Deferred tax

assets relating to the carry forward of unused tax losses are

recognised to the extent that it is probable that future taxable

profit will be available against which the unused tax losses can

be utilized.

A deferred tax asset is recognized only to the extent that it is

probable that future taxable profits will be available against

which the asset can be utilized. Deferred tax assets are

reviewed at balance sheet date and are reduced to the extent

that it is no longer probable that the related tax benefit will be

realized.

Deferred tax assets and liabilities are offset if there is a legally

enforceable right to offset current tax liabilities and assets, and

they relate to income taxes levied by the same tax authority on

the same taxable entity, or on different tax entities, but they

intend to settle current tax liabilities and assets on a net basis

or their tax assets and liabilities will be realised simultaneously.

Additional income taxes that arise from the distribution of

dividends are recognized at the same time as the liability to

pay the related dividend is recognized.3.20 Earnings/(Loss) per share

The Group presents basic earnings/ (loss) per share (EPS)

data for its ordinary shares. Basic EPS is calculated by

dividing the profit or loss attributable to ordinary shareholders

of the Company by the weighted average number of ordinary

shares outstanding during the period.

3.21 Segment reporting

A segment is a distinguishable component of the Group that

is engaged either in providing products or services (business

segment), or in providing products and services within a

particular economic environment (geographical segment),

which is subject to risks and rewards that are different from

those of other segments.

3.22 Events occurring after the balance sheet date

All material post balance sheet events have been considered

and where appropriate adjustments or disclosures have been

made in respective notes to the financial statements.

3.23 Comparative figures

Where necessary, comparative figures have been reclassified

to conform to the current year's presentation.

3.24 Commitments and contingencies

Contingencies are possible assets or obligations that arise from

a past event and would be confirmed only on the occurrence

or non-occurrence of uncertain future events, which are

beyond the Company's control. Contingent liabilities aredisclosed in Note 29 to the financial statements. Commitments

are disclosed in Note 30 to the financial statements.

3.25 New Accounting Standards issued but not Effective as At

Balance Sheet Date

The Institute of Chartered Accountants of Sri Lanka (ICASL)

has issued a new volume of Sri Lanka Accounting Standards

- 2011, applicable for financial periods beginning on or after

1 January 2012. These Standards have many changes and

consequential changes from the adaption of SLAS 44 and 45.

These new Accounting Standards are prefixed both SLFRS

and LKAS which correspond to the relevant IFRS and IAS.

Disclosure requirement under SLAS 10.30 and 10.31 have

been exempted by the ICASL and therefore all differences and

impacts arising from the new Standards are not presented in

these financial statements.




35


(In the notes all amounts are shown in Sri Lanka Rupees thousands unless otherwise stated)

(4). SEGMENT INFORMATION(a) Business segments Feed Poultry Shrimp Poultry Silo and

milling and breeder farming equipment warehouse Elimination Consolidated

broiler farming complex /adjustment

operations

Year ended 31 December 2010

Sales to outsiders 7,227,142 733,546 - 38,182 10,539 - 8,009,409

Inter segment sales 580,019 424,231 - 76,720 51,165 (1,132,135) -

Total revenue 7,807,161 1,157,777 - 114,902 61,704 (1,132,135) 8,009,409

Segment results 260,213 244,731 (11,054) 13,059 35,301 49,828 592,078

Finance (expenses) / income (29,081) 133 - (100) (15) - (29,063)

Profit / (loss) before tax 231,132 244,864 (11,054) 12,959 35,286 49,828 563,015

Income tax (expenses)/release (11,290) (15,780) - (3,146) (2,309) - (32,525)

Share of results of associate company - - - - - 42,409 42,409

Net profit / (loss) 219,842 229,084 (11,054) 9,813 32,977 92,237 572,899

Year ended 31 December 2009

Sales to outsiders 6,374,130 499,956 - 25,230 - - 6,899,316

Inter segment sales 573,608 336,501 - 75,370 62,838 (1,048,317) -

Total revenue 6,947,738 836,457 - 100,600 62,838 (1,048,317) 6,899,316

Segment results 249,570 (197,702) (5,468) 2,073 39,957 64,000 152,430

Finance (expenses) / income (119,964) (448) 3 (317) (9) - (120,735)

Profit / (loss) before tax 129,606 (198,150) (5,465) 1,756 39,948 64,000 31,695

Income tax (expenses)/release 11,381 6,289 - (1,073) (20,562) - (3,965)

Share of results of associate company - - - - - 24,042 24,042

Net profit / (loss) 140,987 (191,861) (5,465) 683 19,386 88,042 51,772




36


(4). Segment information (Contd)

(b) Business segments (Contd) Feed Poultry Shrimp Poultry Silo and

milling and breeder farming equipment warehouse Elimination Consolidated

broiler farming complex /adjustment

operations

As at 31 December 2010

Segment assets 2,317,192 1,980,071 89,346 32,706 428,008 (361,625) 4,485,698

Associate 128,484 - - - - 101,580 230,064

Inter segment assets 1,339,622 - - - - (1,339,622) -

Total assets 3,785,298 1,980,071 89,346 32,706 428,008 (1,599,667) 4,715,762

Segment liabilities 2,194,468 187,876 3,297 10,369 24,608 - 2,420,618Inter segment liabilities - 1,376,067 94,304 422 186,991 (1,657,784) -

Total liabilities 2,194,468 1,563,943 97,601 10,791 211,599 (1,657,784) 2,420,618

Capital expenditure 35,616 108,663 - - 3,155 147,434

Depreciation/amortization 39,749 74,930 4,929 - 20,001 20,995 160,604

Impairment of intangible assets - 850 - - 850

As at 31 December 2009

Segment assets 2,561,114 1,872,566 102,674 31,567 438,994 (341,159) 4,665,756

Associate 128,484 - - - - 59,171 187,655

Inter segment assets 1,647,068 - - - - (1,647,068) -

Total assets 4,336,666 1,872,566 102,674 31,567 438,994 (1,929,056) 4,853,411

Segment liabilities 2,965,678 126,237 3,572 12,610 22,780 289 3,131,166

Inter segment liabilities - 1,559,283 96,303 6,861 232,783 (1,895,230) -

Total liabilities 2,965,678 1,685,520 99,875 19,471 255,563 (1,894,941) 3,131,166

Capital expenditure 30,996 19,479 - - - - 50,475

Depreciation/amortization 29,561 61,239 4,290 - 15,768 - 110,858

Amortization of intangible assets - 1,803 - - - - 1,803




37


(4). Segment information (Contd)

(c) Business segments (Contd)

The Group is organized into five main business segments:

• Feed milling and broiler operations - manufacture and sale of poultry feed, poultry broiler farming, packing and distribution of

chicken.

• Poultry breeder farming operations - operation of grand parent, parent poultry breeder farms and hatcheries and commercial

farms.

• Shrimp farming - Rental of shrimp farm

• Poultry equipment - import and sale of poultry equipment and vaccine.

• Silo warehouse complex and transshipment operations - operation of ultra modern silo and warehouse complex.

Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash, and

exclude investments in subsidiaries. Segment liabilities comprise current and non-current liabilities. Capital expenditure comprises

additions to property, plant and equipment.

(d) Sales are made up as follows:

Consolidated Company

2010 2009 2010 2009

Process chicken 2,569,396 2,341,953 2,569,396 2,341,953

Feed milling 6,452,830 5,592,413 6,452,830 5,592,413

Poultry breeder farming 1,293,843 934,549 -

Parent birds 4,140 6,907 -

Poultry equipment & vaccine 116,062 101,617 -

Silo warehouse complex and transshipment 71,246 72,054 -

10,507,517 9,049,493 9,022,226 7,934,366

Elimination / adjustment (1,132,135) (1,048,317) - -9,375,382 8,001,176 9,022,226 7,934,366

Sales taxes (1,365,973) (1,101,860) (1,215,065) (986,628)

8,009,409 6,899,316 7,807,161 6,947,738

Sales taxes consist of Group - Turnover Tax Rs 1,160,644/- (2009 - Rs 1,016,172/- ), NBT Rs. 240,889,033/- (2009-159,246,000) and

Value Added Tax Rs 1,123,923,493/- (2009 -Rs 941,598,000/-), Company - NBT Rs 238,981,588/- (2009 - 157,749,000) and Value

Added Tax Rs.976,083,283/-(2009 - Rs 828,879,000/-).

5 OPERATING PROFIT

The following items have been charged / (credited) in arriving at operating profit :


2010 2009 2010 2009

Directors’ emoluments 480 400 360 300

Auditors’ remuneration - Audit 3,300 2,985 1,950 1,800

Depreciation on property, plant and equipment (Note 13) 129,200 94,072 26,227 25,817

Revaluation Deficit - 7,761 - -

(Profit)/ loss on disposal of property, plant and equipment (Note 9) 68 (445) 68 (112)

(Profit) on disposal of quoted investment (Note 9) - (17,373) - (17,373)

Amortization of leasehold right (Note 14) 21,637 16,254 3,756 3,744

Amortization of livestock (Note 18) 316,199 284,505 -

Provision for bad and doubtful debts 31,439 (3,671) 27,957 (3,671)

Operating lease rentals - property 29,970 28,567 17,599 16,824

Staff expenses (Note 7) 486,792 441,239 334,991 299,640




38


6. TEMPORARY CESSATION OF OPERATION

On 1 November 2004 the directors temporarily ceased the operation of breeding, hatching and growing of prawns and sea

cucumber of Ceylon Aquatech (Private) Limited, a subsidiary of the Company.

The Management of the Company is of the view that the commercial operations of the Chilaw Farm could be recommenced. The assets

and liabilities as at the balance sheet date of the division were as follows:

As at 31 December

2010 2009

property, plant and equipment 68,154 70,081

Other receivables 2,368

Total assets 68,154 72,449

Total liabilities - -

Net assets 68,154 72,449

7. STAFF ExPENSES


2010 2009 2010 2009

Salaries and wages 464,674 357,880 315,518 223,534

Social security costs 971 3,759 768 2,026

Defined contribution plans 15,318 76,194 14,687 71,723

Employee benefits (Note 28) 5,829 3,406 4,018 2,357

486,792 441,239 334,991 299,640

Average monthly number of persons employed by the Company and Group during the year:

- Full time 451 453 254 268

- part time 805 957 141 258

1,256 1,410 395 526

Part time employees include contracted labourers hired from third parties and those who work on shift basis.

8. OTHER OPERATING PROFIT / (LOSS)

Other operating Profit / (loss) wholly consist of profit / (loss) arising from out grower operations carried out at the commercial farms of

Three Acre Farms PLC, which is a subsidiary of the Company.

9. OTHER INCOME


2010 2009 2010 2009

Sundry Income 14,878 21,883 19,371 16,135

(Loss) / profit on disposal of fixed assets (68) 445 (68) 112

Profit on disposal of Shares - 17,373 - 17,373

Dividend Income - 1,168 - 1,168

14,810 40,869 19,303 34,788




39


10. NET FINANCE ExPENSES


2010 2009 2010 2009

Interest income (1,511) (840) (1,132) (648)

Net foreign exchange transaction (gain) / losses (22,943) 26,886 (21,969) 26,463

Interest expense - bank borrowings 53,517 94,689 52,182 94,149

29,063 120,735 29,081 119,964

11. INCOME TAx ExPENSES


2010 2009 2010 2009

Current tax 14,679 - - -

Over provision in previous year (1,176) - - -

Deferred tax charge / (release) (Note 27) 7,204 (4,330) - (17,801)

ESC write off 11,818 8,295 11,290 6,420

32,525 3,965 11,290 (11,381)

Under an agreement dated 12 February 2004, entered into by the Company and the Board of Investment of Sri Lanka (BOI), the Com-

pany is entitled to an additional tax holiday of 3 years and a further additional tax exemption period of 5 years commencing from 17

December 2005 on profit and income earned by the Company from transshipment and bulk cargo operations and the operations of the

feed mill and the animal husbandry project.

The Company is liable to pay 35 % as income tax on interest income earned by the Company.

Three Acre Farms PLC is liable to pay income tax on profits and income earned at 15%. The tax losses available to carry forward as of

31 December 2010 amounted to Rs. 453,875,777/- (2009 - Rs. 479,481,472/-).

Ceylon Livestock and Agro business Services (Private) Limited is l iable to pay income tax at 35% on the profits and income earned by

the Company.

Ceylon Pioneer Poultry Breeders Limited is liable to pay income tax at 35% on the profits and income earned by the Company. The tax

losses available to carry forward as of 31 December 2010 amounted to Rs.227,682,800/- (2009 - Rs 227,807,598/-).

Millennium Multibreeder Farms (Private) Limited is liable to pay income tax at 15% on the profits and income earned by the Company.

The tax losses available to carry forward as of 31 December 2010 amounted to Rs.171,012,766/- (2009 - Rs 181,533,000/-).

Ceylon Aquatech (Private) Limited is liable to pay income tax at 15% on the profits and income earned by the Company. However, the

tax losses available to carry forward as of 31 December 2010 amounted to Rs.21,921,158/- (2009 - Rs 14,591,515/-)

Ceylon Warehouse Complex (Private) Limited is exempt from income tax on trading profits for a period of seven years reckoned from

the year in which the Company commences to make profits in relation to its transactions or any year of assessment not later than five

years from the date of its commercial operations, whichever is the earlier. The Company commenced commercial operations on 1

October 2000. Hence the tax holiday commenced from 30 September 2004. However the Company is liable for income tax for other

income for the year of assessment 2009/2010 at the rate of 15%.




40


11. Ta (Contd)

Reconciliation of effective tax rate

The tax on the results of the Group’s operations and the Company’s profit/(loss) before tax differs from the theoretical amount that

would arise using the basic tax rate as follows:


2010 2009 2010 2009

Profit before tax 605,424 55,737 231,132 129,606

Share of profit of associate (42,409) (24,042) - -

Profit before tax, after adjustments 563,015 31,695 231,132 129,606

Add : disallowable expenses 678,377 1,214,137 263,716 1,047716

Deduct : allowable expenses (1,075,637) (1,245,832) (494,848) (1,177,322)

Add : interest income 88 - - -

Deduct :consolidation adjustments (49,172) - - -

Deduct : tax losses setoff (36,395) - - -

Taxable Income 80,276 - - -

Income tax using the domestic corporation tax rate

Rs. 67,093,333 at 15% 10,065 - - -

Rs. 13,183,857 at 35% 4,614 - - -

Current tax 14,679 - - -

Over provision (1,176) - - -

Deferred tax (charge)/release 7,204 (4,330) - 17,801

ESC writeoff 11,818 8,295 11,290 (6,420)

32,525 3,965 11,290 11,381

Further information about deferred tax is presented in Note 27.

12. BASIC EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average

number of shares in issue during the year.


2010 2009 2010 2009

Net profit attributable to shareholders 474,872 133,870 219,842 140,987

Weighted average number of ordinary shares in issue

(thousands) 60,000 60,000 60,000 60,000

Basic earnings per share (Rs.) 7.91 2.23 3.66 2.35




41


13. PROPERTY, PLANT AND EQUIPMENT

(a) Consolidated As at Additions / Revaluation Disposals/ As at

01.01.2010 WIP transfer write off 31.12.2010

Cost / Valuation

Land 327,136 - - - 327,136

Building 1,170,915 21,381 - - 1,192,296

Hatchery equipment 69,381 - - - 69,381

Plant and machinery,electrical and farm equipments 1,038,887 88,221 - (139) 1,126,969

Furniture and fittings, and office equipmets 102,364 8,054 - (410) 110,008

Motor vehicles 105,273 18,893 - - 124,166

Capital work in progress 96,707 (86,794) - - 9,913

2,910,663 49,755 - (549) 2,959,869

As at Charge Adjustment or Disposals/ As at

01.01.2010 for the year revaluation write off 31.12.2010

Depreciation

Building 143,660 27,104 - - 170,764

Hatchery equipment 8,709 1,213 - - 9,922

Plant and machinery,electrical and farm equipments 726,735 97,262 - (99) 823,898

Furniture and fittings, and office equipmets 80,944 (3,568) - (382) 76,994

Motor vehicles 89,652 7,189 - - 96,841

1,049,700 129,200 - (481) 1,178,419

As at As at

01.01.2010 31.12.2010

Carrying amount

Land 327,136 327,136

Building 1,027,255 1,021,532

Hatchery equipment 60,672 59,459

Plant and machinery,electrical and farm equipments 312,152 303,071

Furniture and fittings, and office equipmets 21,420 33,014

Motor vehicles 15,621 27,325

Capital work in progress 96,707 9,913

1,860,963 1,781,450

(b) Property, plant and equipment include fully depreciated assets, the cost of which as at 31 December 2010 amounted toRs. 481,493,447/- (2009 - Rs. 458,899,510/-).

(c) The recoverable amount of property (excluding land), plant and equipment is determined based on value-in-use calculation. These

calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The growth

rate does not exceed the long-term average growth rate for the business in which the Three Acre Farms PLC group operates.

Key assumptions used for value-in-use calculations:

%

Gross margin 15

Growth rate 5

Discount rate 20

These assumptions have been used for the whole Three Acre Farms PLC group. Management determined budgeted gross margin

based on past performance and its expectations for the market development. The weighted average growth rate used is consistent

with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the industry.




42


13. Property, plant and equipment (Contd)

(d) Capital work in progress at the balance sheet date includes value of work not certified for farm buildings amounting to Rs 1,665,637/-

(2009 - 2,182,700/-) and the purchase of capital equipment in the process of being installed Rs 8,247,000/- (2009 - Rs 97,679,722/-).

(e) Property, plant and equipment include assets of the temporarily ceased division of Ceylon Aquatech (Private) Limited , the net book

value of which as of the balance sheet date amounted to Rs 68,154,178/- (2009-Rs 69,998,000/-).

(f) In compliance with the accounting policy, the Group revalued some of the land and buildings owned by the Group companies

by an independent, professional valuer Mr. J. M. J. Fernando, A.M.I.V. (Sri Lanka) as at 31 December 2009. The lands have been

revalued on the basis of current market value and buildings were revalued at net present value. There are no tax implications or tax

liabilities due to revaluation of land and building. The Group’s share of the revaluation in excess of Rs.336,635,236/- over the net

book values as at 31 December 2009 has been placed to the credit of the revaluation reserve.

On reassessment of fair value of the Groups assets it has been identified that there is no permanent impairment of property plant

& equipment which requires provision in the financial statements.

Company Location Last Land Carrying value as at

Revaluation date Extent 31/12/2010

Freehold Land

Ceylon Grain Elevotors PLC Attanagalla Farm-Attanagalla 31/12/2009 12 A - 2R - 15.7 P 39,900,000

39,900,000

Three Acre Farms PLC Meegoda farm, Meegoda 31/12/2009 24A - 0R - 3.17P 13,800,000

Kosgama farm, Aluthambalama, Kosgama 31/12/2009 20A - 3R - 27.05P 5,750,000

Halwathura farm, Halwathura 31/12/2009 50A - 0R - 16.76P 2,000,000

Bulathsinhala farm,

Agaloya Bulathsinhala 31/12/2009 60A - 3R - 27P 70,178,000

Hijra farm, Pagoda,Beruwala 31/12/2009 50A - 3R - 8.5P 133,315,000

Makuluwatta farm, Waga 31/12/2009 13A - 1R - 23.56P 5,750,000

230,793,000

Ceylon Pioneer Poultry Aswatte Farm, Kosgama 31/12/2009 6A -3R -35.07P 1,958,000

Breeders Ltd Nilambe Farm,Office Junction,Galaha 31/12/2009 33A -0R - 28.82P 32,012,000

Wewelpanawa Farm,Wewelpanawa 31/12/2009 27A -1R - 1.54P 11,853,000

45,823,000

Ceylon Aquatech (Pvt) Ltd Chilaw Farm 31/12/2009 50A - 1R -34P 10,620,000

10,620,000

Freehold Land carried at revalued amount




43

Company Location Last No of Carrying value as at

Revaluation date Building 31/12/2010

Freehold Building

Ceylon Grain Elevotors PLC Attanagalla Farm-Attanagalla 31/12/2009 52 22,536,000

52 22,536,000

Three Acre Farms PLC Meegoda farm, Meegoda 31/12/2009 61 124,372,838

Kosgama farm, Aluthambalama, Kosgama 31/12/2009 39 33,717,797

Halwathura farm, Halwathura 31/12/2009 31 68,680,114

Bulathsinhala farm, Agaloya

Bulathsinhala 31/12/2009 92 185,203,786

Hijra farm, Pagoda,Beruwala 31/12/2009 69 210,848,157

Makuluwatta farm, Waga 31/12/2009 36 91,610,784328 714,433,476

Ceylon Pioneer Poultry Aswatte Farm, Kosgama 31/12/2009 19 21,193,600

Breeders Ltd Nilambe Farm,Office Junction,Galaha 31/12/2009 10 7,793,081

29 28,986,681

Millennium Multibreeder Wewelpanawa Farm,Wewelpanawa 31/12/2009 30 175,761,948

Farms (Pvt) Ltd 30 175,761,948

Ceylon Aquatech (Pvt) Ltd Chilaw Farm 31/12/2009 15 57,525,775

15 57,525,775

Company Location Land Extent Carrying value as at

31/12/2010

Leasehold Land

Ceylon Grain Elevotors PLC Head office premises - Colombo-15 5A - 1R -20P 54,001,144

54,001,144

Company Location No of Carrying value as at

Building 31/12/2010

Leasehold Building

Ceylon Grain Elevotors PLC Head office premises - Colombo-15 14 66,613,856

66,613,856

Ceylon Warehouse Head office premises - Colombo-15 19 400,270,000

Complex (Pvt) Ltd 400,270,000

Company Cost as at 01/01/2010 Accumulated Depreciation NBV 31/12/2010

Land 39,879,024 - 39,879,024

Building 26,707,329 4,280,551 22,426,778

66,586,353 4,280,551 62,305,802

Group Cost as at 01/01/2010 Accumulated Depreciation NBV 31/12/2010

Land 334,873,907 - 334,873,907

Building 909,045,444 175,530,343 733,515,101

1,243,919,351 175,530,343 1,068,389,008

(g) Freehold Building carried at revalued amount

(h) Leasehold Land carried amount

i). Leasehold Building carried amount


(j) Freehold Land carried at revalued amount

The carrying amount of revalued assets that would have been included in the Financial Statements had the assets been carried

at cost less accumulated depreciation is as follows:




44

13. Property, plant and equipment (Contd)

(k) Company As at Additions / Disposals/ As at

01.01.2010 WIP transfer write off 31.12.2010

Cost / valuation

Land 39,900 - - 39,900

Building 26,816 - - 26,816

Plant and machinery, factory, electrical and farm equipments 378,731 10,405 (139) 388,997

Furniture and fittings, and office equipments 92,425 8,044 (410) 100,059

Motor vehicles 49,187 8,920 - 58,107

Capital work in progress 97,679 (89,432) - 8,247

684,738 (62,063) (549) 622,126

As at Charge Disposals/ As at

01.01.2010 for the year write off 31.12.2010

Depreciation

Building 3,716 564 - 4,280

Plant and machinery, factory, electrical and farm equipments 290,293 15,981 (99) 306,175

Furniture and fittings, and office equipments 60,709 6,749 (382) 67,076

Motor vehicles 39,141 2,933 - 42,074

393,859 26,227 (481) 419,605

As at As at

01.01.2010 31.12.2010

Carrying amount

Land 39,900 39,900

Building 23,100 22,536

Plant and machinery, factory, electrical and farm equipments 88,438 82,822

Furniture and fittings, and office equipments 31,716 32,983

Motor vehicles 10,046 16,033

Capital work in progress 97,679 8,247

290,879 202,521

(l) Property, plant and equipment include fully depreciated assets, the cost of which as at 31 December 2010 amounted to Rs. 264,134,058/-

(2009 - Rs 243,603,336/-).

(m) The Company has disposed cost of office equipments Rs 410,073/-, factory equipment Rs 121,739/-,electrical equipment Rs 17,111/-

during the year and the loss from disposal amounting to Rs.67,725/- have been recognized under other operating expenses.

14. LEASEHOLD RIGHT OVER LAND & BUILDING


2010 2009 2010 2009

Balance as at beginning of the year 542,522 557,681 124,371 127,020

Transfer from capital working progress - 1,095 - 1,095

Amortization for the year (21,637) (16,254) (3,756) (3,744)

Balance as at end of the year 520,885 542,522 120,615 124,371

The Company has an agreement to mortgage for Rs. 495mn over leasehold land & building, plant & machinery equipment at No.15,

Rock House Lane, Colombo-15 as security for credit facilities.

The leasehold land and building which was recognized previously as finance lease are accounted as operating lease based on

substance of lease agreement.

The management represents that the previous treatment was in accordance with Accounting Standards prevalent at that time and this

amount will be treated similar to lease prepayment and amortized over the remaining period of the lease.





45

14. Leasehold right over land & building (Contd)

The lease period of the leasehold land expires on 19 September 2012 and the Company has the option of renewing the lease for a

further period of 30 years.

The Company’s leasehold land and buildings were revalued in 1992, by independent valuers. Valuations were made on the basis of

the market value for existing use. The book values of the property were adjusted to the revalued amount and the result-ant surplus was

credited to the revaluation reserve.

If the leasehold land and buildings were stated on the historical cost basis, the amounts would be as follows:

2010 2009

Cost 115,980 115,980

Accumulated depreciation (46,392) (44,072)

Net book value 69,588 71,908

15. INTANGIBLE ASSETS


2010 2009 2010 2009

a) Goodwill

Cost

Balance as at beginning of the year 17,938 17,938 - -

Additions during the year - - - -

Balance as at end of the year 17,938 17,938 - -

Impairment

Balance as at beginning of the year 17,088 15,286 - -

Impairment for the year 850 1,802 - -

Balance as at end of the year 17,938 17,088 - -

Carrying Amount - 850 - -


The excess of the purchase consideration paid over the value of the net assets of the Kosgama Farm on acquisition is fully impaired

during the year.

The recoverable amount of property (excluding land), plant and machinery equipment is determined based on value-in-use calculation.

These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash

flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the

long-term average growth rate for the industry in which the Group operates.

Key assumptions used for value-in-use calculations:

%

Gross margin 15Growth rate 5

Discount rate 20

These assumptions have been used for the whole CGE Group. Management determined budgeted gross margin based on past

performance and its expectations for the market development. The weighted average growth rates used are consistent with the

forecasts included in industry reports. The discount rates are pre-tax and reflect specific risk relating to the industry.




46


(a.2) Summarized financial information of Ceylon Agro Industries Limited

Balance Sheet 2010 2009

Total assets 2,249,229 1,525,285

Total liabilities (1,053,057) (815,302)

Net assets 1,196,172 709,983

Preference dividend not accrued (254,802) -

Revenue and profits 2010 2009

Revenue 2,652,180 2,256,408

Profit/(loss) 306,198 111,134

(b.1) Prima Management Services (Private) Limited (PMS)

2010 2009

Balance at the beginning of the year 33 33

Share of results after tax 31 -

Balance at the end of the year 64 33

(b.2) Summarized financial information of Prima Management Services (Private) Limited

Balance Sheet 2010 2009

Total assets 71,052 87,394

Total liabilities (70,857) (88,273)

Net assets 195 (879)

Revenue and profits 2010 2009

Revenue 98,399 64,062

Profit/(loss) 1,074 835

15. Intangible assets (Contd)


2010 2009 2010 2009

(b) ERP Software

Cost

Additions during the year 97,679 - 97,679 -

97,679 - 97,679 -

Amortisation

Amortisation for the year (9,767) - (9,767) -

Carrying Amount 87,912 - 87,912 -

16. INVESTMENT IN ASSOCIATE COMPANIES


2010 2009 2010 2009

Ceylon Agro Industries Limited (CAIL) (16 a) 230,000 187,622 128,451 128,451

Prima Management Services (Private) Limited (PMS) (16 b) 64 33 33 33

230,064 187,655 128,484 128,484

(a.1) Ceylon Agro Industries Limited (CAIL)

Consolidated

2010 2009

Balance at the beginning of the year 187,622 163,580

Share of results 42,378 24,042

Balance at the end of the year 230,000 187,622




47


17. INVESTMENT IN SUBSIDIARY COMPANIES

(a) Investment in subsidiary companies - quoted

Number of Company Groupshares holding Holding 2010 2009

% %

Three Acre Farms PLC 13,469,980 57.21% 57.21% - -Net book value as at 31 December 148,625 148,625

Market Value as at 31 December 1,214,992 124,597

(b) Investment in subsidiary companies - unquoted

Number of Company Groupshares holding Holding 2010 2009

Ceylon Warehouse Complex (Private) Limited 15,000,002 100% 100% 150,000 150,000

Ceylon Aquatech (Private) Limited 6,000,000 100% 100% 60,000 60,000

Ceylon Livestock & Agrobusiness

Services (Private) Limited 300,002 100% 100% 3,000 3,000

Net book value as at 31 December 213,000 213,000

(d) Investment in associate companies - Unquoted

No of Shares Holding % 2010 2009 No of Shares Holding % 2010 2009

Ceylon Agro Industries Limited (CAIL) 22,831,718 23% 230,000 187,622 22,831,718 23% 128,451 128,451Prima Management

Services (Private) Limited (PMS) 3,334 33% 64 33 3,334 33% 33 33

Net book value as at 31 December 230,064 187,655 128,484 128,484

Share of movement in equity value - - - -

Equity value in investments 230,064 187,655 128,484 128,484

The associate company, Ceylon Agro Industries Limited (CAIL), is a company incorporated in Sri Lanka. it is engaged in the manufac-

ture of noodles, bakery products and value added poultry products. It is also in the distribution and retail of flour in addition to agricul-

tural development of maize and forage crops. CAIL has Rs.300 million of convertible preference shares. The litigation that delayed the

conversion has been settled, and CAIL shareholders are in the process of converting such preference shares into ordinary shares. If

such conversion takes place, the percentage holding of the Company will reduce to 23%. The Group’s share of profit/(loss), net assets

and goodwill on consolidation has been accounted for on the basis that the Company’s share is 23%.

On 3rd March 2011, subject to its shareholders’ approval, the Directors of CAIL have resolved to capitalize the Company’s reserves byissuing 6,107,143 ordinary shares at a price of Rs. 28 per share. Accordingly company’s holdings may reduce to 21.5%.

The Company has invested Rs. 33,334/- in Prima Management Services (Private) Ltd (PMS) acquiring 33% stake during 2006.


16. Investment in associate companies (Contd)

(c) Share of profit of associate companies

Group’s share of

profit/(loss) after tax

2010 2009

Ceylon Agro Industries Limited (CAIL) 42,378 24,042

Prima Management Services (Private) Limited (PMS) 31 -

42,409 24,042




48

17. Investment in subsidiary companies (Contd)

(c) Details of the companies incorporated in Sri Lanka, in which the Company held an interest of 50% or more are set out below:

Name of Company Proportion of

ordinary shares held Business

2010 Movement 2009

Ceylon Livestock & Agrobusiness Services 100.00% 100.00% Import and sale of poultry equipment and

(Private) Limited - vaccines

Ceylon Warehouse Complex (Private) Limited 100.00% 100.00% Provide storage facilities

Ceylon Aquatech (Private) Limited 100.00% - 100.00% Integrated shrimp business

Three Acre Farms PLC 57.21% - 57.21% Hatching and sale of day old chicks and

- commercial farming

Ceylon Pioneer Poultry Breeders Limited 57.21% 57.21% Operation of poultry breeder grand parent and

- parent farms and hatcheries and commercial

farming

Millennium Multibreeder Farms (Private) 57.21% 57.21% Operation of modern poultry and hatcheries

Limited - utilizing advanced technologies.

The financial year of all above companies are ended on 31 December and they are audited by Messrs KPMG Ford Rhodes

Thornton & Co. These companies were incorporated in Sri lanka.

18. LIVESTOCK


2010 2009 2010 2009

Opening net book value 224,287 221,112 - -

Additions 446,999 287,680 - -

Amortization (Note 5) (316,199) (284,505) - -

Closing net book value 355,087 224,287 - -

19. OTHER INVESTMENTS

Quoted investments No. of shares Consolidated/Company

2010 2009 2010 2009

Hatton National Bank PLC (non-voting ordinary shares) - 137,500 - 7,322

Disposal of shares - (137,500) - (7,322)

Market value of other investments - - - -





49

20. AMOUNT DUE FROM AFFILIATED COMPANIES


2010 2009 2010 2009

Three Acre Farms PLC - - 964,318 1,055,472

Ceylon Aquatech (Private) Limited - - 94,304 96,303

Ceylon Pioneer Poultry Breeders Limited - - 348,005 345,591

Ceylon Warehouse Complex (Private) Limited - - 186,992 232,783

Ceylon Livestock Agrobusiness Services - - 422 6,861

Millennium Multibreeder Farms (Private) Limited - - 63,743 158,220

- - 1,657,784 1,895,230

Less-provision for receivables - - (318,162) (248,162)

- - 1,339,622 1,647,068

Provision have been made for receivables from Three Acre Farms PLC, Ceylon Aquatech (Private) Limited and Ceylon Pioneer Poutry

Breeders Ltd amounting to Rs. 123,850,000/-, Rs. 94,312,000/- and Rs 100,000,000, respectively.

21. INVENTORIES Consolidated Company

2010 2009 2010 2009

Raw materials and consumables 1,060,681 1,376,000 975,294 1,243,261

Work in progress 4,103 4,418 4,103 4,302

Hatching eggs 4,118 3,585 - -

Finished goods

- Feeds 21,003 41,699 21,003 41,699

- Chicken 25,378 11,150 25,378 11,150

- Broiler DOC 4,632

Out grower stock 104,185 88,095 104,186 88,095

1,224,100 1,524,947 1,129,964 1,388,507

Less: provision for slow moving and obsolete items (17,847) (17,847) (17,847) (17,847)

1,206,253 1,507,100 1,112,117 1,370,660

Inventories are on an “agreed to mortgage” condition, against short term bank borrowings from the bank.

22. TRADE AND OTHER RECEIVABLES


2010 2009 2010 2009

Trade receivables 565,281 488,581 555,064 480,285

Less: provision for bad & doubtful debts (260,391) (228,952) (250,040) (222,083)304,890 259,629 305,024 258,202

Prepayments 34,909 35,587 20,841 23,429

Other receivables [Note (22.a)] 112,528 165,433 74,402 108,357

452,327 460,649 400,267 389,988

Trade receivables have been pledged as securities for short term bank borrowings





50

22. Trade and other receivables (Contd)

(a) Other receivables Consolidated Company

2010 2009 2010 2009

Deposits and advances 14,410 14,987 8,464 10,451

Staff loans 813 622 141 80

Other receivables 97,305 149,824 65,797 97,826

112,528 165,433 74,402 108,357

23. CASH AND CASH EQUIVALENTS Consolidated Company

2010 2009 2010 2009

Cash at bank and in hand 32,520 28,315 30,229 22,147

Short term bank deposits 14,942 5,858 - -47,462 34,173 30,229 22,147

The weighted average effective interest rate on short term bank deposits was Group- 3.26% (2009- Nil%).

For the purposes of the cash flow statement, the year-end cash and cash equivalents comprise the following:

(a) Net cash and cash equivalents


2010 2009 2010 2009

Cash and bank balances 47,462 34,173 30,229 22,147

Bank overdrafts (Note 26) (86,475) (61,934) (75,182) (53,184)

(39,013) (27,761) (44,953) (31,037)

24. TRADE AND OTHER PAYABLES Consolidated Company

2010 2009 2010 2009

Trade payables 116,947 68,921 77,966 26,841

Accrued expenses 104,234 70,770 55,377 46,857

Dividend payable 561 561 561 561

Other payables 172,601 71,173 133,888 59,980

394,343 211,425 267,792 134,239

25. AMOUNT DUE TO AFFILIATED COMPANIES Consolidated Company

2010 2009 2010 2009

Non current

Hapiways Management Services Pte Ltd 1,065,944 1,081,576 1,065,944 1,081,576

1,065,944 1,081,576 1,065,944 1,081,576

Current

Ceylon Agro Industries Limited 27,975 41,164 27,975 41,164

Prima Ceylon (Private) Limited 245,773 326,137 245,773 326,137

Prima Management Services (Private) Limited 13,080 28,563 13,080 28,563

Hapiways Management Services Pte Ltd 117,986 587,735 116,408 586,579

Colombo Sea Foods Limited 2,640 2,640 2,640 2,640

407,454 986,239 405,876 985,083





51

26. INTEREST BEARING BORROWINGS Consolidated Company

2010 2009 2010 2009

Bank overdraft 86,475 61,934 75,182 53,184

Bank borrowings 360,000 694,900 360,000 694,900

446,475 756,834 435,182 748,084

The interest rate exposure of the borrowings of the Group and the Company was as follows:


2010 2009 2010 2009

Total borrowings:

- at fixed rates - - - -

- at floating rates 446,475 756,834 435,182 748,084

446,475 756,834 435,182 748,084

Consolidated/Company

2010 2009

Weighted average effective interest rates:

- bank overdrafts AWPLR+0.75% AWPLR+0.75%

- bank borrowings

- fixed - -

- floating 9.00% 14.30%

Current bank borrowings were obtained to finance the import of raw materials relating to the production of poultry and animal feed.

Security for these borrowings are inventories and receivables and agreement to mortgaged for Rs. 495mn over leasehold land &

building, machinery equipment at No.15, Rock House Lane, Colombo-15.

27. DEFERRED TAxATION

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against tax liabilities

and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:


2010 2009 2010 2009

Deferred tax assets 27( b) (111,741) (86,466) (34,505) (38,491)

Deferred tax liabilities 27 (a) 190,091 157,612 34,525 38,511

78,350 71,146 20 20

The gross movement on the deferred income tax account is as follows:


2010 2009 2010 2009

As at beginning of the year 71,146 24,981 20 17,801

Income statement release (Note 11) 7,204 (24,821) - (17,801)

Transfer from revaluation reserve - 50,495 - -

Prior year adjustments (Note 37) - 20,491 - 20

As at end of the year 78,350 71,146 20 20

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within

the same tax jurisdiction, is as follows:





52

27. Deferred taation (Contd)

(a) Deferred tax liabilities:

Deferred tax liabilities of the Group and the Company wholly arose from accelerated tax depreciation. The deferred tax liability of the

Group and the Company as at 31 December 2010 are Rs.190,091,000/- and Rs. 34,525,000/- respectively.

(b) Deferred tax assets:

Consolidated Provision Tax Employee Total

on assets losses benefit

obligations

As at beginning of the year (525) (85,560) (381) (86,466)

Credited to income statement (32,864) 10,573 (2,985) (25,275)

As at end of the year (33,389) (74,987) (3,366) (111,741)

Provision Tax Employee Total

on assets losses benefit

Company obligations

As at beginning of the year (35,990) - (2,501) (38,491)

Credited to income statement 3,844 - 143 3,986

As at end of the year (32,146) - (2,358) (34,505)

(c) Tax losses of Rs. 227,682,000/- and Rs. 21,921,158/- as disclosed in the note 11 to the financial statements have not been

recognised as deferred tax assets due to uncertainty regarding availability of future taxable profit in the respective companies.

28. EMPLOYEE BENEFITS Consolidated Company2010 2009 2010 2009

Present value of unfunded obligations 28,052 23,946 19,654 16,676

Present value of funded obligations - - -

Total present value of obligations 28,052 23,946 19,654 16,676

Fair value of plan assets - - -

Total employee benefits 28,052 23,946 19,654 16,676

Movement in the present value of the employee benefits

Employee benefit as at 1 January 23,946 22,563 16,676 15,775

Benefits paid by the plan (1,723) (2,023) (1,040) (1,456)

Current service cost 2,377 1,306 1,632 823

Interest cost 3,452 2,100 2,386 1,534

Actuarial gain during plan year - - - -

Transition obligation/(asset) recognized in Income statement - - - -

Employee benefit as at 31 December 28,052 23,946 19,654 16,676





53

28. Employee benefits (Contd) Consolidated Company

2010 2009 2010 2009

Expense recognized in income statement

Current service costs 2,377 1,306 1632 823

Interest on obligation 3,452 2,100 2,386 1,534

Transition obligation/(asset) recognized in Income statement - - - -

Actuarial gain during plan year - - - -

5,829 3,406 4,018 2,357

The actuarial valuation was carried out by professionally qualified actuary, Piyal S Gunathilake of P&G Associates.

The actuarial valuation was made on 31 December 2010

The liability is not externally funded.

Actuarial assumptions

Principal actuarial assumptions at the reporting date (expressed as weighted averages):

Discount rate as at 31 December 2010 10%

Expected return on plan assets as at 1 January 2010 0%

Future salary increases 10%

Assumptions regarding future mortality are based on published statistics and mortality tables.

The average life expectancy of an individual retiring at age 55.

Staff turnover sliding scale by the age of employee retiring from 10%-1%.

The provision for retiring gratuity for the year is based on the actuarial valuation made on 31 December 2010.

29. CONTINGENT LIABILITIES

(a) After Inquiry, the Director General of Customs by Order dated 22nd July 1998 has imposed on the Company a forfeiture under the

provisions of the Customs Ordinance of approximately Rs. 1,198 million. This sum comprises of Rs. 548 million being treble the value

of a quantity of maize supplied by the Company to the Thriposha Programme allegedly without any specific approval or authority being

granted by the Ministry of Finance and a sum of Rs. 650 million being treble the value of quantities of maize converted and categorized

as special feeds “C” and “CC” and sold in the open market, allegedly in contravention of the declaration made in respect thereof to

the Controller of Imports and Exports and the Sri Lanka Customs and also in breach of the Agreement between the Company and the

Government of Sri Lanka.

The Company has totally denied the alleged contraventions and has instituted actions in the Court of Appeal (Case No. CA 839/98)

on 27th August 1998 by way of an application for Writs of Certiorari and Prohibition to quash the Order imposing the forfeiture and

to prohibit any steps being taken in pursuance of the said Order, and in the District Court of Colombo (Case No. 5195/Spl) on 21st

September 1998 for a declaration that the said Order is wrongful, unlawful, null and void and of no force or avail in law.

The Honorable Attorney General has filed objections in the Court of Appeal (Case No.CA 839/98) and the Company has been granted

permission to file its counter objections and accordingly the Company has filed the same. When the case was called on 31st January

2005, the Attorney General took up preliminary objections about the maintainability of this action and after hearing both sides, Court

dismissed the preliminary objections of the Hon. Attorney General and fixed the matter for argument. Being aggrieved by the said Order,

the Hon. Attorney General appealed to the Supreme Court seeking Leave to Appeal against the said Order (SC Appeal 01/2006). When

the case was taken up on 18th January 2008, the Honorable Chief Justice laid aside the case in view of a possible settlement but the

Honorable Attorney General filed a motion, supported on 26th November 2008, to re-open the case. This case was fixed for hearing

and same was postponed for several dates and now it is fixed for hearing on 11th May 2011. CA 839/98 case also getting postponed

in view of the appeal pending in the Supreme Court and the same will be called on next in the Court of appeal on 30th March 2011

After several postponements in DC Colombo case No. 5195/Spl, the Company took up a preliminary objection and both parties

having tendered their respective written submissions, the Order was delivered on 21st February 2007 stating that the Issues would

be answered at the end of the case after hearing the evidence. On the advice of the Company’s legal counsel, the Company appealed





54

against this Order to the High Court of the Western Province (Case No. WP/HCCA/07/2007), which was supported on 19th July 2007.

The Order of the Provincial High Court was delivered on 02nd April 2009 against the Company.

Aggrieved by the said Order, a Special Leave to Appeal Application was filed by the Company against the said Order of the Provincial

High Court to the Supreme Court on 12/05/09 on the basis that the High Court Judge has not considered or decided on the main

question raised in the case (Appeal Case No. is SC (HC) CALA 94/2009). After lengthy arguments the Supreme Court refused Leave

to Appeal and confirmed the order of the Provincial High Court

On an application made by the Attorney General in SC (HC) CALA 94/2009,(prior to the Order) the Supreme Court directed the parties

to proceed with the trial in DC Colombo case No. 5195/ Spl pending appeal. Accordingly this case was called on 19th November 2009

for trial and the same was laid by. Thereafter this case was called on 07th October 2010 to pronounce the Judgment of the Supreme

Court and thereafter the matter was fixed for trial for 21st January 2011. On that date, DSG representing the Hon AG informed Court

that there is a possibility of a settlement and that the terms are presently being negotiated. Accordingly, Court re-fixed the case for trial

or settlement on 13th May 2011 and directed the parties that in the event of a settlement, to agree on the terms before that date.

(b) The Attorney General’s Department has filed a Debt Recovery Action in the District Court of Colombo (Case No 866/DR) on behalf of Sri

Lanka Customs for the recovery of the said sum together with interest. The Company promptly filed papers denying the State’s claim.

After Inquiry, the District Judge made Order on 29th March 2005 granting permission for the Company to defend the action upon

depositing a sum of Rs. 400 million before 29th May 2005. On the advice of the Company’s legal Counsel, Company has filed action

in the Court of Appeal bearing No. CA/LA 142/2005 to set a side or vary the said Order in DC Colombo Case No. 866/DR. The Court

of Appeal has granted Leave to Appeal to the Company and stayed proceedings in 866/DR and on an application made by the Hon

Attorney General fixed the matter before a Divisional Bench and was to be taken up for argument on 09th May 2006. However, it was

not taken up for argument on that date and the case was postponed on several occasions to re-constitute the Bench. The case is now

due to be called on 21st March 2011

The DC 866/DR case will be next called on 19th May 2011 and the outcome of the appeal is awaited.

(c) 284/2008 MR

This is the case where Green Valley Farm has sued CGE claiming Rs 195,775,305.91 as losses resulted from the business affairs had

with CGE.

Inquiry was commenced and first witness on behalf of Green Valley Farm is giving evidence. Witness is currently under cross

examination. Next hearing is on 12th May 2011.

(d) 796/2007

Court of Appeal pronounced its judgment against CGE where the court held that preliminary objection taken up by CGE against the

Ministers Reference is not valid. Accordingly the case (A 3175) was referred back to Industrial Court for hearing.

(e) A-3175Further to Court of Appeal judgment of 796/2007 Industrial Court took up the case for hearing but there were several postponements

in view of the parties’ agreement - to seek possibility of a settlement. Case is due to be taken up on 31st March 2011 for hearing.





55

30. COMMITMENTS

No capital commitments outstanding as at the balance sheet date except the followings

Within one 1-5 years More than Total

year 5 years

Company

(a) Hapiways Management Services Pte Limited -

for the management services rendered outside Sri Lanka. 26,628 106,512 718,956 852,096

(b) Operating lease commitment - The Ministry of Finance

and planning for the use of land and buildings at

15, Rock house lane, Colombo 15. 14,170 56,680 382,590 453,440

(c) Sri Lanka Ports Authority - operating lease rentals for the

use of Woodland Warehouse. 3,429 13,716 92,583 109,728

Group(d) Ceylon Warehouse Complex (Private) Limited operating lease

rentals to Sri Lanka Ports Authority for the use of land. 12,371 49,484 334,017 395,872

56,598 226,392 1,528,146 1,811,136

(e) Amount due from the Three Acre Farms PLC is Rs. 964,317,694/- which is classified as non-current receivable in the company’s


The company is the parent company of Three Acre Farms PLC, and confirms their commitment, in present circumstances to

continue financial support in the business operations of Three Acre Farms PLC, and to meet financial obligations. As the major

share holder in Three Acre Farms PLC, the Company has no intension or inclination of withdrawing their support or reducing the

scale of operations of the Three Acre Farms PLC in the forth coming 12 months.

(f) The Company has provided a corporate guarantee of Rs. 45,000,000/- to its associate Ceylon Agro Industries Limited for a bank-

ing facility obtained from Sampath Bank PLC.

31. STATED CAPITALIn accordance with Section 58 of Companies Act No 7 of 2007, which became affective from 3 May 2007, share capital and share

premium of the Company have been reclassified as stated capital.

Company

2010 2009

60,000,000 Ordinary shares 600,000 600,000

Share premium 417,996 417,996

Stated capital as at 31 December 1,017,996 1,017,996

32. MINORITY INTEREST

Consolidated

2010 2009

As at beginning of the year 80,035 46,958Additions due to revaluation of assets - 115,175

Share of net profit/ (loss) of subsidiaries 98,027 (82,098)

As at end of the year 178,062 80,035

33. REVALUATION RESERVE

The revaluation reserve relates to property, plant and equipment.

Revaluation reserve can be analyzed as fol lows:


2010 2009 2010 2009

As at beginning of the year 231,142 61,237 37,579 38,639

Revaluation surplus - 221,570 - 110

Depreciation transfer - (1,170) - (1,170)

Transfer to deferred tax - (50,495) - -

As at end of the year 231,142 231,142 37,579 37,579





56

34. CASH GENERATED FROM OPERATIONS

Reconciliation of profit / (loss) before tax to cash generated from operations:


2010 2009 2010 2009

Profit / (loss) before tax 605,424 55,737 231,132 129,606

Adjustments for:

Depreciation (Note 5) 129,200 94,072 26,227 25,817

Amortization of leasehold right (Note 14) 21,637 16,786 3,756 3,744

Revaluation deficit - 7,761 -

Amortization of intangible assets (Note 15) 10,617 1,802 9,767 -

Amortization of livestock (Note 18) 316,199 284,505 - -

(Profit) / loss on disposal of property, plant and equipment (Note 5) 68 (445) 68 (112)

(Profit) on disposal of other investment ((Note 5) - (17,373) (17,373)

Exchange Gain/(loss) ( Note 10) (22,943) 26,886 (21,969) 26,463

Interest received (Note 10) (1,511) (840) (1,131) (648)

Interest expense (Note 10) 53,517 94,689 52,182 94,149

Dividend income (Note 9) - (1,168) - (1,168)

Provision for bad debts (Note 5) 31,439 (3,671) 27,957 (3,671)

Share of associate profit [Note16(c)] (42,409) (24,042) - -

Changes in working capital

- trade and other receivables (44,404) 78,550 257,457 49,487

- inventories 300,847 282,645 258,543 272,905

- payables (414,643) (399,083) (461,286) (389,326)

Employee benefits (Note 7) 5,829 3,406 4,018 2,357

Cash generated from operations 948,867 500,217 386,721 192,230

35 RELATED PARTY TRANSACTIONS

35.1 Key management personnel information

Key management personnel include all the members of the Board of Directors of the Company having authority and responsibility for

planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly.

Compensation paid to / on behalf of key management personnel of the companies are as follows:


2010 2009 2010 2009

Short-term employee benefits 480 400 360 300

Post employment benefits - - - -

480 400 360 300

Mr. Cheng Chih Kwong, Primus, Mr. Cheng Chih Cheng,Robert, Mr. Tan Beng Chuan, Mr. Cheng Chih Hui, Peter, Dr. Wickrema Sena

Weerasooria and Mr. Sunil Karunanayaka the directors of the Company are also directors of the following companies as set out below

and with transaction in note number 35.2 have been carried out.





57

35.1 Key management personnel information (Contd)

Name of the related party Name of the director Nature / Rationale of transaction

Three Acre Farms PLC Mr. Cheng Chih Kwong, Primus CGE sells feeds to TAF. Also company purchases

Subsidiary Mr. Cheng Chih Cheng,Robert broiler DOC and culled birds from TAF.

Mr. Tan Beng Chuan

Mr. Cheng Chih Hui, Peter


Mr. Sunil Karunanayaka

Ceylon Pioneer Poultry Breeders Mr. Cheng Chih Kwong Primus, No inter-company transactions has been recorded

Limited Mr. Cheng Chih Cheng, Robert during the year.

Subsidiary Mr. Tan Beng Chuan

Ceylon Aquatech (Private) Limited Mr. Cheng Chih Kwong, Primus, No inter-company transactions has been recorded

Subsidiary Mr. Tan Beng Chuan during the year.

Ceylon Livestock and Agrobusiness Mr. Cheng Chih Kwong, Primus, CLAS supplies veterinary drugs, medicine and

Services (Private) Limited Mr. Tan Beng Chuan poultry equipments to the company’s outgrower farms.

Subsidiary Also company sells drugs and vaccines to CLAS.

Ceylon Warehouse Complex Mr. Cheng Chih Kwong, Primus, CWCL provides storage facilities to the Company.

(Private) Limited Mr. Tan Beng Chuan

Subsidiary

Ceylon Agro Industries Limited Mr. Cheng Chih Kwong, Primus, The company is hiring the poultry processing plant,

Associate Mr. Tan Beng Chuan rendering Plant and Storage facilitations from CAI.

Also company sells process chicken to CAI.

Millennium Multibreeder Farms Mr. Cheng Chih Kwong, Primus, CGE sells feeds to MMFL. Also company purchases

(Private) Limited Mr. Tan Beng Chuan broiler DOC and culled birds from MMFL.

Subsidiary

Prima Ceylon (Private) Limited Mr. Cheng Chih Kwong, Primus, The CGE purchases Brand Pallet and Wheat pollard.

Group Company Mr. Cheng Chih Cheng, Robert

Mr.Tan Beng Chuan

Hapiways Management Services Mr. Cheng Chih Kwong, Primus, Purchase of all kind of imported raw materials, feed

Pte Ltd Mr. Cheng Chih Cheng, Robert additives, spare parts and other significant imports.

Group Company Mr. Cheng Chih Hui, Peter

Prima Management Services (Private) Limited is an associate company of CGE and has provided IT related services to group

companies during the year. The Company has outsourced the IT function to PMS and pays an agreed fee. Further, PMS maintains the

ERP system on behalf of the Company and charged accordingly. (See note number 35.2 for related party transactions),

35.2 Related party transactions

The Group has a related party relationship with its subsidiaries, associates and related group companies as disclosed in note number

35.1 Companies within the Group engage in trading transactions. The following transactions were carried out with related parties

during the year ended 31 December 2010.





58

35.2 Related party transactions (Contd)

(a) Sales of goods and services


2010 2009 2010 2009

Sales of goods:

Three Acre Farms PLC - - 422,667 398,400

Ceylon Pioneer Poultry Breeders Limited - - - -

Millennium Multibreeder Farms (Pvt) Limited - - 130,640 132,778

Ceylon Livestock and Agrobusiness Services - - 26,713 42,430

(Private) Limited



23,543 25,346 603,563 598,954

Sale of services:

Ceylon Agro Industries Limited 628 3,151 628 3,151

Ceylon Warehouse Complex (Private) Limited - - 1,500 1,500

Ceylon Livestock and Agrobusiness Services - - 360 360

(Private) Limited


Prima Ceylon (Private) Limited 718 580 718 580

1,346 3,731 6,506 8,891

(b) Purchases of goods and services


2010 2009 2010 2009

Purchase of goods:


Ceylon Livestock and Agrobusiness Services - - 27,447 24,409

(Private) Limited

Ceylon Pioneer Poultry Breeders Limited - - - -

Millennium Multibreeder Farms (Pvt) Limited - - 113,748 120,206

Hapiways Management Services Pte Ltd 3,160,036 3,514,500 3,141,784 3,504,943



3,430,528 3,725,522 3,863,954 4,076,814

Purchases of services:

Ceylon Warehouse Complex (Private) Limited - - 51,166 62,838Hapiways Management Services Pte Ltd 27,221 27,648 27,221 27,648



Prima Management Services (Private) Limited 26,691 27,892 26,691 27,892

Ceylon Aquatech (Private) Limited - - 3,064 3,044

274,241 260,388 328,471 326,270





59

35.2 Related party transactions (Contd)

(c ) The receivables from related companies and payables to related companies on sale/purchase of goods/services are set out in

note 20 and 25 respectively. These receivables and payables are unsecured, interest free and have no fixed repayment terms.

(d) The subsidiary companies use some facilities of the Company free of charge and part of the accounting and administrative

functions of the subsidiary companies are also performed by the Company for which charges are made.

36. EVENTS OCCURRING AFTER BALANCE SHEET DATE

There are no events which require adjustment to, or disclosure in the financial statements except for the following :

The Directors propose for payment a First and Final Dividend of Rs. 1.00/- per share for the year ended 31st December 2010 on 16th

March 2011.

37. COMPARATIVE INFORMATION

Comparative information in financial statements have been restated as follows ,

(a) Reclassification of Leasehold right over land & buildings as Freehold

Land amounting to Rs.39,900,000 and building amounting to Rs.23,100,000 of Attanagalla farm has been transferred to Property Plant

& Equipment from leasehold right over land & buildingsproperties ,since the land and building qualifies as Property Plant & Equipment

under SLAS 18- Property Plant & Equipment.In addition the following two restatements were also affected.

1) Recognition of previously unrecognised revaluation of land & Building of Attanagalla farm amounting to Rs.130,000.

2) Defered tax liability arised upon revaluation stated above (1) of amounting to Rs.20,000

(b) Minority Interest

Revaluation reserve relating to minority interest of Rs.115,175,000 to was allocated to the relevant heading on the balance sheet.

(c) Deferred Tax Liability

Recognition of previously unrecognised deferred tax liability amounting to Rs. 20,491,164 of Ceylon Warehouse Complex (Private)

Limited.

38. DIRECTOR’S RESPONSIBILITY

The board of Directors are responsible for the preparation and fair presentation of these financial statements.





60

Five Year Financial Summary

For the years ended 31 December 2010 2009 2008 2007 2006

CONSOLIDATED

OPERATING RESULTS FOR THE PERIOD

Group revenue 8,009,409 6,899,316 7,209,585 5,756,856 4,563,003

Operating profit 592,078 152,430 36,946 212,905 259,737

Net finance expenses (29,063) (120,735) (217,972) (86,437) (172,625)

Share of results of associate 42,409 24,042 34,787 11,825 (11,483)

Profit / (loss) before taxation 605,424 55,737 (146,239) 138,293 75,629

Taxation (32,525) (3,965) 20,804 (43,546) 1,519

Profit from ordinary activities 572,899 51,772 (125,435) 94,747 77,148

Minority interest (98,027) 82,098 72,840 (26,301) (1,394)

Profit attributable to the company 474,872 133,870 (52,595) 68,446 75,754

BALANCE SHEET

Stated capital & share premium of subsidiaries 1,231,129 1,231,129 1,231,129 1,231,129 1,231,129

Revaluation reserve 231,142 231,142 61,237 62,407 63,577

Retained earnings 654,811 179,939 44,899 96,324 26,708

Minority interest 178,062 80,035 46,958 119,798 93,497

Non - current liabilities 1,172,346 1,176,668 1,198,142 1,779,809 1,258,181

3,467,490 2,898,913 2,582,365 3,289,467 2,673,092

Intangible assets 87,912 850 2,652 4,455 6,258

Property, plant and equipment and investments 2,302,335 2,403,485 2,134,921 2,100,248 2,103,244

Investment in an associate company 230,064 187,655 163,613 128,826 117,001

Other investments 355,087 224,287 228,434 160,862 113,220

Non current receivables - - - - 24,851

Current assets 1,740,364 2,037,134 2,395,332 2,405,188 1,465,655

Current liabilities (1,248,272) (1,954,498) (2,342,587) (1,510,112) (1,157,137)

3,467,490 2,898,913 2,582,365 3,289,467 2,673,092

COMPANY

RATIOS AND OTHER INFORMATION

Earnings /(loss) per share (Rs) 3.66 2.35 (1.91) 0.07 1.64

Market price per share (Rs) 74.70 14.25 6.50 13.00 13.50

Price earnings ratio 20.41 6.06 (3.40) 185.71 8.23

Net dividend pay out (Rs 000) - - - - -Bonus issue (Ratio) - - - - -

Rights issue (Ratio) - - - - -

Rights price (Rs) - - - - -

Debt / equity ratio 0.23 0.55 0.67 0.71 0.38

Interest cover (No of times) 0.03 2.38 0.16 1.23 1.97

Net assets per share (Rs) 26.51 22.85 20.50 22.41 22.33

Current ratio (No of times) 1.39 0.96 0.94 1.54 1.16

Shares traded 103,961,000 11,519,900 5,303,700 13,435,100 13,804,800

US $ Exchange rate - average 113.42 115.20 108.60 110.72 104.24

US $ Exchange rate - year end 110.95 114.38 113.00 108.65 107.72





61

Group Structure

33%

33%

100%

100%

100%

Ceylon

Agro-Industries Limited.

Ceylon Livestock &

Agrobusiness Services

(Private) Limited.

Ceylon Aquatech

(Private) Limited.

Three Acre

Farms PLC

Ceylon WarehouseComplex

(Private) Limited.

Activities

Provide storage facilities.

Activities

Poultry grand parent

operation.

Activities

Poultry Breeder

Farming & Hatchery

(Application of

Advance

Poultry Technologies)

Activities

Integrated shrimp operation including feed milling,

breeding, processing and culture of shrimp.

Activities

Import & sale of poultry equipment, vaccines,

pet foods and vet. pharmaceutical.

Activities

Manufacture of noodles, bakery products, value added

poultry products, distribution and retail of flour and agriculturaldevelopment of maize and forage crops.

Activities

ICT solution & services

Activities

Poultry breeder

farms, hatcheries &

commercial farms.

Ceylon

Pioneer Poultry

Breeders Ltd.

MillenniumMultibreeder

Farms

(Pvt) Ltd.

57.21%

Prima Management Services

(Private)

Limited .

A c t i v i t i e s

I n t e g r a t e d p o u l t r y

a c t i v i t i e s i n c l u d i n g f e e d m i l l i n g ,

c o m m e r c i a l f a r m i n g

a n d t r a d i n g o f p r o c e s s e d c h i c k e n .

C G E




62

Shareholder Information

ANALYSIS OF SHAREHOLDERS ACCORDING TO THE NUMBER OF SHARES AS AT 31 DECEMBER 2010

RESIDENT NON RESIDENT TOTAL Shareholdings Number of No of Percentage Number of No of Percentage Number of No of Percentage

shareholders share (%) shareholders share (%) shareholders share (%)

1 to 1,000 2,467 887,601 1.48 34 15,554 0.03 2,501 903,155 1.51

1001 to 10,000 978 3,566,041 5.94 22 91,830 0.15 1,000 3,657,871 6.09

10,001 to 100,000 173 5,261,569 8.77 8 381,200 0.64 181 5,642,769 9.41

100,001 to 1,000,000 26 5,688,226 9.48 0 - 0.00 26 5,688,226 9.48

Over 1,000,000 2 3,339,300 5.56 4 40,768,679 67.95 6 44,107,979 73.51

3,646 18,742,737 31.23 68 41,257,263 68.77 3,714 60,000,000 100.00

Categories of Shareholders No of Shareholders No of Shares

Individual 3,523 9,535,171Institutional 191 50,464,829

3,714 60,000,000

LIST OF 20 MAJOR SHAREHOLDERS BASED ON THEIR SHAREHOLDINGS AS AT 31 DECEMBER 2010

31 December 2010 31 December 2009

No Name Number of shares Percentage Number of shares Percentage

1 Prima Limited, Singapore 27,270,800 45.45 27,270,800 45.45

2 Japfa Comfeed International Pte Ltd, Singapore 6,052,829 10.09 6,052,829 10.10

3 Supra Limited, Hong Kong 5,179,797 8.63 5,179,797 8.63

4 Eka Limited, Singapore 2,265,253 3.78 2,265,253 3.78

5 Perpetual Capital (Private) Limited 2,134,300 3.56 - -

6 Perpetual Asset Management (Pvt) Limited 1,205,000 2.01 - -

7 AVIVA NDB Insurance PLC A/C No. 07 778,500 1.30 - -

8 Waldock Mackenzie Ltd/Hi-Line Trading (Pvt) Ltd 670,900 1.12 210,000 0.35

9 Seylan Bank PLC / Symphony Capital Ltd 409,000 0.68 - -

10 Commercial Bank of Ceylon PLC / A.L Devasurendra 378,100 0.63 - -

11 NDB AVIVA Wealth Management Ltd S/A

Hatton National Bank PLC 352,800 0.59 - -

12 Mr. Z.Alif 234,400 0.39 - -

13 AVIVA NDB Insurance PLC A/C No. 03 220,000 0.37 - -

14 Waldock Mackenzie Ltd / Symphony Capital Limited 207,900 0.35 - -

15 Dr. R.M. Peiris 200,000 0.33 200,000 0.33

16 Mrs. D.R. Costa 185,900 0.31 - -

17 Pan Asia Banking Corporation PLC / Mr. A.F. Munas &

Mrs. N.M. Munas 179,400 0.30 - -

18 Mr. D.S.J.V. Costa 167,700 0.28 - -

19 Waldock Mackenzie Ltd/ Hi-Line Towers (Pvt) Ltd 162,500 0.27 - -

20 Mrs. L. Bandaranayake 150,000 0.25 - -

Total 48,405,079 80.69 41,178,679 68.64

The percentage of shares held by the public 2010 - 44.46%

The percentage of shares held by the public 2009 - 44.46%




63

Statement of Value Added

In Rs. 000 2010 2009 2008 2007 2006

Revenue 8,009,409 6,899,316 7,209,585 5,756,856 4,563,003

Adjustment for other income 14,810 40,869 32,107 16,748 18,130

8,024,219 6,940,185 7,241,692 5,773,604 4,581,133

less: Cost of materials and services purchased

from external sources 5,580,488 4,975,571 5,327,251 4,147,795 3,238,484

Value Added 2,443,731 1,964,614 1,914,441 1,625,809 1,342,649

Consolidated Value Added Statement

Distributed as follows:

In Rs. 000 2010 % 2009 % 2008 % 2007 % 2006 %

To employees as remuneration 486,792 19.92 441,239 22.46 389,730 20.36 359,332 19.29 303,678 22.62

To the government as taxes 1,365,973 55.90 1,101,860 56.09 1,265,154 66.08 998,977 66.46 768,205 57.22

To the providers of capital

as Interest on loans 53,517 2.19 94,689 4.82 136,600 7.14 78,631 4.44 103,150 7.68

as Minority Interest (98,027) (4.01) 82,098 4.18 72,840 3.80 26,301 1.51 1,394 0.10

To Shareholders as Dividends - - - - - - - - - -

Retained within the business

as Depreciation & Amortization 160,604 6.57 110,858 5.64 102,712 5.37 94,122 4.40 90,468 6.74

as Reserves 474,872 19.43 133,870 6.81 (52,595) (2.75) 68,446 3.90 75,754 5.64

2,443,731 100.00 1,964,614 100.00 1,914,441 100.00 1,625,809 100.00 1,342,649 100.00




64

Notice of Meeting

NOTICE IS HEREBY GIVEN that the 28th Annual General Meeting of the Company will be held on 21 April 2011 at the Insti-

tute of Chartered Accountants of Sri Lanka, Auditorium, 30A, Malalasekara Mawatha, Colombo - 07 at 10.00 a.m. and the

business to be brought before the Meeting will be:

1. To receive and consider the Report of the Board of Directors on the State of Affairs of the Company and the Statement

of Accounts for the year ended 31 December 2010, with the Report of the Auditors thereon.

2. To declare a First & Final Dividend of Rs. 1.00 per share in respect of the financial year ended 31st December 2010

as recommended by the Directors.

3. To re-elect Mr. Cheng Chih Cheng, Robert a Director who retires the Annual General Meeting in terms of Article 87 of

the Articles of Association of the Company

4. To re-appoint Dr. Wickrema Sena Weerasooria, who retires having attained the age of 70 years on 17th July 2009, andthe Company has received special notice to pass the under noted ordinary resolution in compliance with Section 211

of the Companies Act No.7 of 2007 in relation to his re-appointment.

Ordinary Resolution:

“That Dr. Wickrema Sena Weerasooria, a retiring Director, who has attained the age of 70 years on 17th July 2009 be

and is hereby re-appointed a Director of the Company, in terms of Section 211 of the Companies Act No.7 of 2007 and

it is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act, shall not apply to

the re-appointment of the said Director.”

5. To re-appoint Messrs KPMG Ford Rhodes Thornton & Company, Chartered Accountants as Auditors and to authorise

the Directors to determine their remuneration.

6. To authorise the Directors to determine contributions to charities and other purposes.

BY ORDER OF THE BOARD

S S P CORPORATE SERVICES (PRIVATE) LIMITED

SECRETARIES

Colombo 03

21 March 2011

Note:-

(a) A member entitled to attend and vote at the above mentioned meeting is entitled to appoint a Proxy to attend and vote

instead of him/her. Such Proxy need not be a member of the Company.

(b) A Form of Proxy is annexed to this notice.

(c) The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 15, Rock House Lane,

Colombo 15 not later than 48 hours before the time appointed for the holding of the meeting.




65

Form of Proy

I/We ………............................................…………………………………………………...………………………………………… of

………………...……………………………………………………………..………….......................................being a member/s of

Ceylon Grain Elevators PLC, hereby appoint ………….………………..….....………………………………….............................

……..……………………..........…………….. of ……………………………………................................……………..or failing him

Mr. CHENG CHIH KWONG, PRIMUS of Colombo or failing him

Mr. TAN BENG CHUAN of Colombo or failing him

Mr. CHENG CHIH CHENG, ROBERT of Colombo or failing him

Mr. CHENG CHIH HUI, PETER of Colombo or failing him

Dr. WICKREMA SENA WEERASOORIA of Colombo or failing him

Mr. SUNIL KARUNANAYAKE

as my/our Proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on

21 April 2011, and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid meetingand to VOTE as indicated below:

FOR AGAINST

1. To receive and consider the Report of the Board of Directors

on the State of Affairs of the Company and the Statement of

Accounts for the year ended 31 December 2010, with the

Report of the Auditors thereon.

2. To declare a First and Final Dividend of Rs. 1.00 per share in

respect of the financial year ended 31st December 2010 as

recommended by the Directors.

3. To re-elect Mr. Cheng Chih Cheng, Robert a Director who retires by

rotation at the Annual General Meeting in terms of

Article 87 of the Articles of Association.

4. To re-appoint Dr. Wickrema Sena Weerasooria, who retires having

attained the age of 70 years on 17th July 2009, a Director by

passing the ordinary resolution set out in the notice.

5. To re-appoint Messrs KPMG Ford Rhodes Thornton & Company,

Chartered Accountants as Auditors and to authorise the

Directors to determine their remuneration.

6. To authorise the Directors to determine Contributions to charities.

As witness my/our hand/this ……………….day of ………………………… Two Thousand and Eleven.

Signature: …………………………….

Note : Please delete the inappropriate words.

1. Instructions for completion of proxy are noted on the next page

2. A proxy need not be a member of the Company

3. Please mark “X” in appropriate cages, to indicate your instructions as to voting




66

Form of Proxy Cont.

INSTRUCTIONS TO COMPLETION OF FORM OF PROxY

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your

instructions as to voting, by signing in the space provided and filling in the date of

signature.

2. Please indicate with a ‘X’ in the cages provided how your proxy is to vote on the Resolutions.

If no indication is given the Proxy in his/her discretion may vote as he/she thinks fit.

3. The completed Form of Proxy should be deposited at the Registered Office of the

Company at No. 15, Rock House Lane, Colombo 15, at least 48 hours before the time

appointed for holding of the Meeting.

4. If the form of proxy is signed by an attorney, the relative power of attorney should

accompany the completed form of proxy for registration, if such power of attorney has not

already been registered with the Company.

Note:

If the shareholder is a Company or body corporate, Section 138 of the Companies Act No.7

of 2007 applies to Corporate Shareholders of Ceylon Grain Elevators PLC. Section 138

provides for representation of Companies at meetings of other Companies. A Corporation,

whether a Company within the meaning of this act or not, may-where it is a member of another

Corporation, being a Company within the meaning of this Act, by resolution of its Directors or

other governing body authorise such person as it thinks fit to act as its representative at any

meeting of the Company. A person authorised as aforesaid shall be entitled to exercise the

same power on behalf of the Corporation which it represent as that Corporation could exercise

if it were an individual shareholder.



Company Name


Company Registration No. PQ 161

Registered Office

No. 15, Rock House Lane, Colombo 15, Sri Lanka.

Tel : 2522556 or 8/2523580/2526378 to 2526383

Fax : +(94) (11) 2524163

E-mail : [email protected]

Subsidiary Companies

Three Acre Farms PLC

Ceylon Livestock & Agrobusiness Services (Pvt) Limited

Ceylon Pioneer Poultry Breeders Limited

Ceylon Warehouse Complex (Pvt) Limited

Ceylon Aquatech (Pvt) Limited

Millennium Multibreeder Farms (Pvt) Limited

Associate CompaniesCeylon Agro Industries Limited

Prima Management Services (Pvt) Limited

Bankers

Hatton National Bank PLC

Nations Trust Bank PLC

National Development Bank PLC

Sampath Bank PLC

Union Bank of Colombo Limited

Bank of Ceylon

Commercial Bank of Ceylon PLC

Lawyers

Varners Lanka Law Office

D. L. & F. De Saram

H. E. Nevil Joseph

Auditors

KPMG Ford, Rhodes, Thornton & Co.

Company Secretary

S S P Corporate Services (Pvt) Limited

No. 101 Inner Flower Road, Colombo 3.

Name of Directors

Mr. Cheng Chih Kwong, Primus - Chairman &

Chief Executive Officer

Mr. Tan Beng Chuan - Executive Director

& Group General Manager

Mr. Cheng Chih Cheng, Robert - Non Executive Director

Mr. Cheng Chih Hui, Peter - Non Executive Director

Dr. Wickrema Sena Weerasooria - Independent

Non Executive Director

Mr. Sunil Karunanayake - Independent

Non Executive Director

Management

Mr. Tan Hoe Lai - General Manager

Mr. K. A. R. S. Perera - Financial Controller

Mr. Chng Sun Tick - AGM (Farms)

Mr. Ang Kian Huat - AGM (Farms)

Mr. M. C. M. De Costa - AGM (Personnel,

Security & General Affairs)

Mr. Neil Jayaweera - AGM (Processing)

Mr. Lalith Abeywardena - AGM (Sales)

Corporate Information

Designed & Printed by Ceylon Printers PLC

ceylon grain elevators plc- annual report 2010

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